Nvidia earnings are circled in red, underlined in black, and highlighted in yellow on virtually every Wall Street calendar this week as the AI-chip maker continues to pace both tech-market gains and broader investor sentiment, heading into the end of a challenging summer on Wall Street.

The S&P 500 is up 1.7% for the month, following a weeklong bout of global market turmoil in early August that threatened to derail one of the strongest rallies in years and investors are looking to consolidate their recent gains heading into the autumn, with what the analysts call a beat-and-raise earnings report from Nvidia  (NVDA)  Wednesday and the first of a series of interest rate cuts from the Federal Reserve in early September.

The importance of Nvidia's update, of course, is paramount, given its status as the third-largest stock in the S&P 500; its market value of just over $3.1 trillion, and its stranglehold on the AI investment story as the market leader in design and production of the chips and processors that power that game-changing technology.

The chipmaker also represents around 6.1% of the total weight of the S&P 500, putting it just behind Apple  (AAPL)  and just ahead of Microsoft  (MSFT)  in terms of its overall market influence.

That group of stocks, alongside tech giants Amazon  (AMZN) , Google parent Alphabet  (GOOGL) , Facebook parent Meta Platforms  (META)  and Tesla  (TSLA) , have seen their collective second-quarter earnings rise 34% from a year earlier, compared with a 6% gain for the rest of the S&P 500.

Big moves in Nvidia are expected

Nvidia alone in fact has powered more than a third of the Nasdaq 100's 18.4% gain this year, and options-market pricing suggests that traders are expecting a 9.35% move, or a swing valued around $298 billion, from its after-the-bell update.

Nvidia's role in the current market ramp and the impact that tech investments are having on the broader economy are equally compelling: Estimates suggest that at the current projected rate, Nvidia will capture around 14% of marketwide capital spending by 2026.

And yet the stock isn't overvalued: Prior to the launch of ChatGPT in late 2022 by Microsoft-backed OpenAI, a move that effectively fired the starting gun on the current AI-investment rush, Nvidia traded at a price-to-earnings multiple of 42.4 times.

Related: Analyst updates Nvidia stock price target with Q2 earnings in focus

That same multiple, which calculates the value of the stock compared with its projected earnings over the next 12 months, was pegged Tuesday at 42.1 times.

The same can't be said for the broader market, however, which is currently trading at a forward-earnings multiple of 26.8 times, well north of the longer-term average of around 20.3 times.

Joe Davis, chief economist at Vanguard, says the market might be even more richly valued than that, arguing that on a cyclically adjusted basis, the S&P 500's price-to-earnings multiple is around 32% over its fair value.

Markets are richly priced: Vanguard

"Investors looking to connect the dots between the current level of share prices, probable levels of economic activity, and the widespread enthusiasm for AI would be well-advised to temper any expectations that economic growth and corporate profits are set for near-term acceleration," Davis said.

"Given growth rates, they should also be prepared to endure periodic downturns that would push stock prices closer to their fair values," he added. .

That could mean that even if Nvidia blasts Wall Street's earnings forecast — a bottom line of 64 cents a share on revenue of around $28.7 billion — it might not echo through as support for the wider market.

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Slowing economic growth, stubborn inflation and a Federal Reserve set on "gradual" and "methodical" interest-rate cuts, not to mention the uncertainty tied to a for now dead-heat presidential election, could all conspire to hold down market gains over the coming months.

September is also historically disappointing, especially in an election year, according to data from the Stock Trader's Almanac.

Catalyst Funds' Miller: Look to Fed policy moves

David Miller, co-founder and chief investment officer at Catalyst Funds, says Fed policy might be the bigger and more important driver for year-end market gains given the likelihood of a so-called soft landing for the world's biggest economy.

“Now that we've been seeing slightly weaker employment reports, it seems inflation is coming under control, and interest rates are beginning to decline," Miller said.

"Looking ahead, the bigger question for next month isn't just whether they'll cut rates by 25 basis points or so in September, but more importantly, what their actions will be afterward." he added.

Related: Fed Chairman Powell signals path of interest rate cuts

Richard Saperstein, chief investment officer at New York-based Treasury Partners, also says Fed policy is important and adds that it will need to be matched by improved earnings growth.

Collective S&P 500 profits are likely to rise 12.7% over the second quarter, according to LSEG data, to a share-weighted total of $502.1 billion.

Earnings growth for the year is forecast at 10.1%, with a follow-on gain of 15.3% in 2025.

More AI Stocks:

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"At current valuations, stocks are expensive and any further upside will depend on improving earnings," Saperstein said. "Abundant liquidity coupled with declining inflation and an accommodative central bank will provide the backdrop for higher stock prices."

And for Nvidia?

"It's clearly an important market component and each earnings release will be a cliffhanger," he said. "The bar remains high for Nvidia to demonstrate that AI spending is continuing at a torrent pace."

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