Feb 26 (Reuters) - Nvidia's much-awaited results - seen as a barometer of AI chip demand - on Wednesday could prove to be an inflection point for artificial intelligence stocks that have fueled the market's rally in the last two years.

Investors have raked in big returns from the AI boom that has accrued largely to the so-called "Magnificent Seven", a group of tech giants that includes Nvidia, Microsoft and automaker Tesla.

That rally marched on despite growing wariness of the stocks' high valuations - and whether the billions of dollars in investment would yield significant returns.

Those concerns have come to the fore over the last month as technology companies look set to tighten data center spending. Several of the stocks have dropped sharply from their peaks in late 2024, led by a 37% drop in Tesla from its high in December.

The stocks have been further shaken this week after an analyst report said Microsoft scrapped some data center leases. Shares of Nvidia NVDA.O have declined nearly 6% in that time, fed by worries over the low cost of China's DeepSeek.

But Nvidia has been a savior for the market, having exceeded estimates for revenue and per-share earnings for each of the past eight quarters, according to LSEG data.

"Nvidia has the heavy task of lifting the market mood this week. If it cannot, the selloff in stocks could accelerate," said Ipek Ozkardeskaya, market analyst at Swissquote Bank.

"Hopes rest on Nvidia's shoulders."

The stock rose 2.6% in premarket trading on Wednesday, lifting the chip sector as well as stock index futures from a selloff due to a dour consumer confidence report.

Nvidia jostles with Apple, Microsoft for market cap dominance in AI era

Nvidia, the world's second most valuable company, has been the top beneficiary of Wall Street's picks-and-shovels AI trade, adding about $2.7 trillion in market value since ChatGPT's November 2022 debut — hailed as AI's "iPhone moment".

The company's near 1,800% surge in the last five years makes it the leader of the Mag Seven. Over that time those stocks, on average, have more than tripled, while the benchmark S&P 500 has gained about 65%.

So far in 2025, those stocks have stumbled. The Mag 7 is down about 4.5%, while the rest of the S&P 500 has gained about 4.4% - so the entire index has eked out a mere 1% rise.

Chart represents the percentage by which Nvidia has exceeded or not met analysts' expectations for quarterly revenue. Nvidia has outdone estimates for nine consecutive quarters.

Options imply a 7.7% swing for shares of the AI bellwether in either direction after the results, in line with the stock's average move of 7.6% on the day after results over the last 12 quarters, according to analytics service ORATS.

Despite its blistering rally, Nvidia stock is trading at a lower premium as earnings estimates have climbed faster than its share price. The stock trades at about 28 times expected earnings, down from 36 a year ago and a peak above 80 in June 2023, LSEG data showed.

Rising earnings estimates pull down Nvidia PE ratio

Still, a recent stumble in January after DeepSeek unveiled lower-cost AI models wiped $593 billion from Nvidia's market cap - a record one-day market value loss that underscored the risks of the AI trade.

"DeepSeek rattled investors but, given Nvidia's first mover advantage and the huge infrastructure investment plans from tech giants like Meta, it's an indication that Nvidia's high-end chips will remain in demand," said Susannah Streeter, head of money and markets, Hargreaves Lansdown.