Optimism about the prospects of artificial intelligence has boosted the valuations of several tech heavyweights, including Nvidia, Microsoft and most recently Oracle. This has pushed the benchmark S&P 500, Nasdaq and the Dow Jones to new heights this year. The S&P 500 and Nasdaq hit new record highs on Thursday, rising about 15% and 19%, respectively. The Dow Jones is up about 10% this year.
The rise in US stocks has prompted a series of warnings about the likelihood of an impending correction. The head of the International Monetary Fund, Kristalina Georgieva, warned on Wednesday of the risks to the global economy from potentially major corrections in lofty stock markets. Jamie Dimon, CEO of JPMorgan Chase, also warned of an increased risk of a significant correction in the US stock market within the next six months to two years, the BBC reported.
Other investors disagree. Analysts at Goldman Sachs argued that while history suggests that bubbles are driven by exuberance building around transformative technology, the current market rally is different because it appears to be driven by “fundamental growth rather than irrational speculation” and that AI is dominated by a few incumbents.
“While it appears we are not yet in a bubble, high 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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