By Lewis Krauskopf

NEW YORK (Reuters) - Earnings from semiconductor bellwether Nvidia (NASDAQ:) on Wednesday are set to provide the latest test for a U.S. stock market rally that has taken indexes to record highs this year.

A 90% run in Nvidia’s shares this year has made it the third-biggest U.S. company by market value, trailing only Microsoft (NASDAQ:) and Apple (NASDAQ:).

Its influence on broader markets has also grown. Because Nvidia’s chips are the gold standard in artificial intelligence, its results are widely seen as a barometer for the burgeoning AI industry, whose evolution has stoked investor enthusiasm and helped drive the bull run in U.S. stocks.

At the same time, Nvidia’s growing weighting in indexes and exchange-traded funds has given its share price moves an outsized influence over broader markets. The stock now has a weighting of over 5% in the , while accounting for 6.5% of the and 20% of the VanEck Semiconductor ETF.

"If they do well ... there are going to be a lot of stocks that ride its coattails," said Jay Woods, chief global strategist at Freedom Capital Markets. "It's very rare you have one stock that can have such a dramatic impact on the overall market. But Nvidia has earned that."

Nvidia’s results come as the S&P 500, and have all notched record highs this month after a turbulent April, boosted by a strong earnings season and renewed hopes that the U.S. economy is headed for a so-called soft landing.

Robust earnings from Nvidia could complement well-received reports from other U.S. megacap companies such as Microsoft and Alphabet (NASDAQ:), helping justify stock market valuations that have grown stretched in recent months. The S&P 500 trades at 20.8 times forward earnings, compared with a historical average of 15.7, according to LSEG Datastream.

Nvidia's presence in AI means "what they report can have a pretty significant bearing on a perception of the major investment theme that's out there right now," said Chuck Carlson, chief executive officer at Horizon Investment Services. AI is "touching every single area, and the nexus of all that is Nvidia," he said.

Nvidia's fiscal first-quarter results are due after the market closes on Wednesday. The earnings could impact the share prices of AI-related companies - some of which have stumbled in recent weeks after massive runs.

Super Micro Computer (NASDAQ:), Advanced Micro Devices (NASDAQ:), Holdings (NASDAQ:) and Palantir Technologies (NYSE:) are among the stocks that sold off following their results this period. Those stocks all are off at least 20% from their 52-week highs.

Nvidia, by contrast, was recently about 2% from its all-time intraday high ahead of its report. The company's quarterly revenue is expected to roughly triple to $24.6 billion, according to LSEG.

"The bar is high," said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments. "Investors are being very demanding right now, and I don’t see why Nvidia wouldn’t have the same hurdle rates that these other companies have had."

BIG SWINGS

Nvidia's blockbuster results a year ago - when the company projected quarterly revenue more than 50% above Wall Street estimates - helped accelerate the market’s excitement for all things AI. The company’s stock rose 24% the following day.

This time around, bets in options markets imply an 8.6% move in Nvidia’s shares in either direction by Friday, Trade Alert data showed. That would translate to a market cap swing of $200 billion - larger than the market capitalization for about 90% of S&P 500 companies.

To be sure, Nvidia's surging share price means the company must meet a high bar to support its stock. For example, some investors may be looking for the company to report particularly powerful revenue and project it to be robust going forward.

"As great and as sure as things seem right now for Nvidia, the revenues are still very volatile and I think fairly highly unpredictable," said Matt Benkendorf, chief investment officer at Vontobel Quality Growth.

However, Nvidia's valuation has moderated even as the shares have soared as analysts rapidly raised their expectations for the company's expected profit. The stock was recently trading at about 34 times forward 12 months earnings estimates, down from over 80 times in the middle of last year, according to LSEG Datastream.

“Unlike some of the AI-driven names ... it’s actually been driven primarily by fundamentals,” said Deepon Nag, portfolio manager of large cap value strategy at ClearBridge Investments.