Jeremy Grantham, co-founder of investment firm GMO and known for spotting market “bubbles” early, said the hype around artificial intelligence (AI) is showing classic signs of a market bubble and will most likely end in a painful correction. He shared these views on Bloomberg’s Merryn Talks Money podcast.
According to Grantham, AI can indeed transform the economy and business, but financial markets are once again repeating a familiar script: investor expectations and asset prices have run far ahead of the technology’s real economic impact. He noted that similar dynamics were seen during the 19th-century railway boom and the late-1990s internet era.
The investor pointed to buying undervalued assets as the most reliable long-term approach. In his view, many popular market “premiums,” including the small-cap effect, ultimately boil down to one principle: buy beaten-down securities and sell those that have become expensive.
Grantham also noted that the U.S. stock market currently appears overvalued. Gains are being supported by major AI-focused investment and a rise in investors’ “animal spirits,” but the higher prices are today, the lower potential returns may be in the future.
At the same time, he is not urging investors to exit the U.S. market entirely. Grantham sees the most compelling opportunities in venture capital and startups rather than publicly traded companies, where AI’s true potential has not yet been fully priced in.
Grantham detailed these views in his book The Making of a Permabear: The Perils of Long-Term Investing in a Short-Term World, which focuses on long-term investment risks in an environment dominated by short-term thinking in markets.
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