Can I convert a 2.5W DC to AC with a 120W DC-AC Inverter?
The theoretical maximum you could get out with 2.5W in (5V @ 500mA) would be 2.5W out. 

A 120W inverter will likely have very bad efficiency at such low power out, and you are going through two conversions (the inefficiencies multiply), so I would guess you'd be lucky to get 1W out, and it's completely possible, maybe likely, that it would not fire up the 120W inverter at all. 

In most cases there should be a better way of accomplishing whatever it is that you are trying to do.