Wall Street is betting on a blowout quarterly report from Nvidia on Wednesday, with its stock near record highs as investors look for evidence that the AI chipmaker can maintain its explosive growth and stay ahead of rivals.

The results will be the latest test for Wall Street's picks-and-shovels trade that has turned Nvidia into the biggest winner of the generative AI boom, thanks to its chips that are essential in powering technology such as Google's Gemini to OpenAI's ChatGPT.

"There is a lot riding on Nvidia's earnings. It is the most important stock in the sector," said Will Rhind, founder and CEO of GraniteShares, which runs an ETF that invests in the chip firm.

A more than six-fold surge in its shares since the start of 2023 has made Nvidia Wall Street's third-most valuable firm, worth more than $2.30 trillion.

Its 89% stock surge so far in 2024 has helped lift the broader market, and Nvidia now accounts for 5% of the S&P 500 , according to LSEG data.

Analyst expectations for Nvidia's future earnings have climbed even faster than its shares. That last left the stock trading at about 35 times expected earnings, down from a peak of over 80 last June, according to LSEG data. Nvidia's staggering valuation might yet have room to grow. "It is undervalued relative to where forecasts are going," Rhind said.

Analysts on average see Nvidia reporting a 242% jump in revenue to $24.60 billion for the fiscal quarter ending in April, according to LSEG data as of May 17. Its sales in the second quarter are expected to rise almost 97%, the data showed.

Analysts see it reporting net income of $12.83 billion in the first quarter, up from $2.04 billion a year ago.

For several quarters, demand for Nvidia's AI processors has outpaced the number of chips that Taiwan Semiconductor Manufacturing Co, its contract manufacturer, has been able to make.

"The only thing really holding Nvidia back right now is supply," said Inge Heydorn, a partner at investment firm G.P. Bullhound, which owns Nvidia shares.

Investors are also concerned about restrictions by Washington on exports of Nvidia's top-shelf AI chips to China.

Investors are awaiting updates on chips Nvidia is developing for the Chinese market after export curbs reduced its revenue share from China to about 9% of sales in the fourth quarter, from about 22% share in the third.

After several quarters of three-fold growth in its revenue last year, Nvidia is also grappling with tough comparisons.

"As the numbers get bigger, you're up against the law of big numbers, and that percentage beat starts to become less and less," BNP Paribas Exane analyst David O'Connor said.

Rising prices of high-bandwidth memory chips used in its AI semiconductors could also dent margins at Nvidia, with analysts expecting adjusted gross margin of 75.8% in the second quarter, compared with expectations of about 77% in the first.

Gross margins might take a slight hit from "memory costs going up and increasing," said G.P. Bullhound's Heydorn.

Overall, analysts remain confident about Nvidia's growth as technology heavyweights from Microsoft to Meta Platforms boost spending on data centers by billions of dollars in the race for generative AI.

Global spending on cloud infrastructure services is likely to increase by 20% in 2024 compared with 18% in 2023, according to research firm Canalys.

"Capital expenditures from Big Tech remains high. Despite their efforts to explore alternative or in-house chips, their options are restricted by both limited supply capacity and the challenge of surpassing Nvidia's proven performance," said Ido Caspi, an analyst at Global X ETFs.

"We still view Nvidia as the industry leader for the foreseeable future."

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Arun Koyyur)