Key Takeaways
The billionaire investor who predicted the dot-com and housing crashes says artificial intelligence stocks are in the biggest US bubble in history — and a 70% rout would not be unexpected.
Jeremy Grantham, co-founder of Boston-based GMO, said the artificial intelligence market has entered bubble territory that rivals the railroads of the 19th century and the internet mania of the late 1990s. He pointed to SpaceX as the defining symbol of peak speculative excess, citing the company's prospectus that defines its addressable market as a quarter of global GDP and describes opportunities such as mining asteroids.
"In 50 years, people will look back and tell stories about SpaceX and its prospectus, like they tell stories about the South Sea Bubble," Grantham said during an interview on Steven Bartlett's "The Diary of a CEO" podcast.
The warning carries weight because of Grantham's track record. He called both the dot-com crash of 2000 and the 2007 housing collapse before they happened. GMO, which manages $85 billion in assets, lost half its client base during the two-and-a-quarter years it spent warning clients ahead of the 2000 crash, as the market kept rising and clients interpreted caution as incompetence.
"The great bubbles always occur around the very most important ideas," Grantham said. "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."
Why This Bubble Is Different
Grantham drew a direct parallel between AI today and Amazon during the dot-com era. Amazon rose six to seven times during the 1999 tech run-up before falling 92% in the crash. It later inherited the retail world. Grantham expects AI to follow a similar arc: the technology survives, but the stocks do not.
"If you look at the data, it would be compatible with history for the peak to be very soon," he said. "This is, I think, the biggest investment bubble in American history."
The US stock market today trades at 35 to 40 times earnings, Grantham noted — not as extreme as Japan's Nikkei at 65 times earnings when it peaked in 1989, but far above historical norms. The Nikkei fell for 20 years and took 35 years to fully recover.
Retail investor participation in US stocks stands at its highest level in modern history, with individual investors directing unprecedented amounts of capital into Wall Street in 2025. Grantham warned that when retail investors are deeply committed to the market during a 70% drawdown, the consequences could be severe.
Wall Street's Structural Incentive to Stay Bullish
Grantham argued that large investment firms have a structural incentive to remain optimistic regardless of valuations. He recounted a 1998 or 1999 debate in front of 1,200 analysts where 99% of the 400 self-identified market experts acknowledged the market was priced to guarantee a major bear market. None of their employers publicly warned clients.
"You will not receive the advice from investment advisers to get your tail out of the market, ever," he said. "It is not good business for them to do that, and they will not ever say it to you."
What Grantham Recommends Instead
Grantham's portfolio prescription for ordinary investors is specific. He recommends putting roughly 60% of savings into a broad-based index of non-US equities covering emerging markets, Europe, Japan, Canada, and Australia. Emerging markets gained 65% over the prior 12 months compared with 25% for the S&P 500, he noted.
The remainder belongs in bonds, a small position in precious metals such as gold and silver, and real estate where practical. He directed investors to treasurydirect.gov as a way to buy US government bonds directly without paying brokerage commissions.
"Don't own US stocks. That's a simple strategy that you can act on," he said.
Bitcoin Called 'Unnecessary Nonsense'
Grantham was equally direct on cryptocurrency. He said he owns none, has never owned any, and does not intend to own any.
"I think it's an unnecessary piece of nonsense. It facilitates nothing except criminals moving money so they can't be seen," he said. "It's not a store of value since it bounces around all over the place, just down from $120K to $60K because it felt like it."
When asked whether bitcoin would eventually reach zero, he did not hesitate. "Well, in the distant future, yes, it will certainly go to zero, but it may take a long time. And you know, in the distant future, everything goes to zero."
Advice for Entrepreneurs and Workers
For 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.
Asked whether he would recommend living in the United States, he declined to answer directly, citing the country's eroding social contract and widening inequality. He pointed to Denmark, Japan, France, and Germany as societies with stronger safety nets and better outcomes on measures such as maternal mortality and life expectancy.
The US Gini coefficient, a measure of wealth concentration, now sits alongside Brazil and Mexico, Grantham said. He called for a gradual shift in tax policy, noting that between 1935 and 1975, the bottom quarter of earners made slightly above average gains while the top quarter made slightly below, resulting in broad prosperity.
Investor Takeaway
For investors holding AI-exposed equities such as Nvidia, AMD, and the broader Nasdaq-100, Grantham's warning suggests the risk of a severe drawdown is elevated. The S&P 500 trades at roughly 22 times forward earnings, while the Nasdaq-100 commands a higher multiple driven by AI optimism. If Grantham is correct, the AI trade that has dominated markets for the past two years could face a reckoning that rivals the 2000 dot-com crash.
This article is for informational purposes only and does not constitute investment advice.
