The steep rally in Wall Street stocks is sparking worries among investors of a bubble forming, which could lead to a significant correction.

Optimism over the prospects of artificial intelligence has lifted the valuations of several technology heavyweights including Nvidia, Microsoft and most recently, Oracle. This has propelled benchmark S&P 500, Nasdaq and the Dow to new heights this year. S&P 500 and the Nasdaq hit fresh record highs on Thursday and are up about 15% and 19%, respectively. The Dow has gained about 10% year-to-date.

The rise in U.S. equities has attracted a series of warnings about the likelihood of an impending correction. International Monetary Fund chief Kristalina Georgieva warned on Wednesday about the risks to the world economy from potentially large corrections in lofty stock markets. JPMorgan Chase CEO Jamie Dimon also warned of a heightened risk of a significant correction in the U.S. stock market within the next six months to two years, the BBC reported.

Other investors disagree. Goldman Sachs analysts argued that while history suggests that bubbles are driven by exuberance that builds around transformative technology, the current market rally is different because it seems to be driven by "fundamental growth rather than irrational speculation" and AI has been dominated by a few incumbents.

"While it appears we are not in a bubble yet, high levels of market concentration and increased competition in the AI space suggest investors should continue to focus on diversification," the analysts led by Peter Oppenheimer wrote in an investor note.

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