Nvidia’s second-quarter results will determine the fate of the AI theme that has boosted markets. Technology shares, including major AI players, have fluctuated recently, signaling caution in the industry. AI-related stocks have surged 170%, with Nvidia leading the charge, accounting for a quarter of the S&P 500’s returns this year.

The AI frenzy has propelled tech stocks to record highs, with companies like Palantir and chipmakers like Broadcom and AMD outperforming. AI’s impact extends beyond tech to utilities and energy companies, driven by increased energy demand. Non-tech companies like GE Vernova and utilities have seen strong gains due to AI excitement.

AI enthusiasm has inflated stock valuations, with the S&P 500’s P/E ratio at its highest level in years. The tech sector’s forward P/E is 36% above its average, raising concerns about overvaluation. Tech’s heavy weighting in the S&P 500, similar to levels seen during the dot-com bubble, suggests market dependency on tech performance.

The combined market cap of the top 10 AI plays, including Nvidia and Microsoft, has surged to $18 trillion, comprising 33% of the S&P 500’s market cap. Concentration risk is increasing, with market dependence on a small group of tech giants. Nvidia’s upcoming report could shape AI trends and impact the market anchored by tech stocks.

Read more at Yahoo Finance: Dominant AI trade confronts test as bellwether Nvidia reports earnings