Jeremy Grantham, the billionaire investor who predicted both the dot-com crash and the 2007 housing collapse, says the artificial intelligence (AI) market is the biggest investment bubble in American history and warns that a 70% decline in high-flying AI stocks would not be unexpected.
Key Takeaways:
Jeremy Grantham, who manages $85 billion at GMO, calls AI the biggest U.S. investment bubble in history and warns of a potential 70% stock decline.Grantham recommends putting 60% of savings into non-U.S. equity indices, citing emerging markets’ 65% gain over the prior 12 months vs. 25% for the S&P 500.Grantham says bitcoin will eventually go to zero and urges investors to buy non-U.S. stocks, bonds, and precious metals before the AI bubble bursts.“The great bubbles always occur around the very most important ideas,” Grantham told Bartlett. “The railroads, everyone could see that it would change the world. And everyone wanted to put their money in. They over-invested, and even though the railroads were a spectacularly powerful idea, the railroads collapsed their stocks, and everybody lost a ton of dough.”
“If you look at the data, it would be compatible with history for the peak to be very soon,” he said.
Grantham added:
“This is, I think, the biggest investment bubble in American history.”
What Grantham RecommendsHe was direct about U.S. stocks. “Don’t own US stocks. That’s a simple strategy that you can act on,” he said.
For context, Grantham pointed to the Japanese stock market, which peaked in 1989 at 65 times earnings, then fell for 20 years. It took 35 years for the Nikkei to fully recover. He said the U.S. market today is trading at 35 to 40 times earnings, not as extreme as Japan at peak, but far above historical norms.
“You will not receive the advice from investment advisers to get your tail out of the market, ever,” he stressed. “It is not good business for them to do that, and they will not ever say it to you.”
He explained that GMO lost half its client book in the two and a quarter years it spent warning clients ahead of the 2000 crash, simply because the market kept rising during that period, and clients interpreted caution as incompetence.
House Prices and InequalityGrantham also weighed in on housing. He said that in the United Kingdom, a typical home sold for 3.4 times family income in 1994. That ratio has since risen to more than 10 times in some areas. He said a 30% price decline, while significant, would still leave homes expensive by historical standards.
Grantham on BitcoinGrantham continued:
“It’s not used conveniently as a medium of exchange. You can’t go into a shop and use it easily. It does one thing very, very well. It’s a means of speculating beautifully.”
Advice for Entrepreneurs and WorkersFor founders, Grantham said to lock up capital now if possible, build cash reserves, and brace for tighter credit markets. For workers, his advice was to develop practical, durable skills, particularly in engineering, mechanical repair, and science, and to build strong community ties.
