Jeremy Grantham has spent more than four decades warning investors about bubbles long before they burst. He called the dot‑com crash. He called the 2008 financial crisis. He even warned about the Japanese asset bubble of the late 1980s. And now, the co‑founder of GMO is sounding the alarm again—this time on artificial intelligence.
In a new round of interviews tied to his book The Making of a Permabear, Grantham argues that the current AI boom is not just frothy—it’s a "classic market bubble" that will end the same way all great bubbles do: with a painful correction. His comments echo his recent appearance on Bloomberg’s Merryn Talks Money, where he described AI as a transformative technology wrapped inside an unsustainable market mania.
But unlike some doomsayers, Grantham isn’t telling investors to run for the exits. Instead, he’s urging them to rethink where the real opportunities lie—and they're not in the public markets.
AI: A Transformative Technology, and a Textbook Bubble
Grantham’s argument begins with a paradox: AI is genuinely revolutionary, but that’s exactly why it has become the foundation for a massive speculative bubble.
On Bloomberg’s podcast, he compared the AI boom to the British railroad mania of the 19th century and the internet bubble of the late 1990s—periods when transformative technologies attracted enormous capital, boosted productivity, and ultimately triggered spectacular market crashes.
"Every really important new technology has had a bubble around it," Grantham said. The pattern is always the same: early promise, massive investment, soaring valuations, and then a brutal shakeout before the true winners emerge.
In his view, today’s AI‑driven stock market is no different. He believes the U.S. market is now in its third major "super bubble", trailing only Japan’s 1989 peak and the U.S. housing bubble.
Value Investing Still Rules: "Buy When It’s Cheap"
Grantham’s core philosophy hasn’t changed in 50 years. He still believes that long‑term returns are determined by valuation—and right now, valuations are stretched far beyond reality.
His "ironclad rule" is simple: The higher the price climbs today, the lower the future returns.
AI‑related capital expenditures, investor euphoria, and the belief that "this time is different" have pushed U.S. equities to levels Grantham considers unsustainable. He argues that investors are confusing technological progress with investment opportunity—a mistake he has seen many times before.
In The Making of a Permabear, he writes that long‑term investing is becoming harder in a world obsessed with short‑term performance. But the principles remain the same: buy cheap assets, avoid bubbles, and stay patient.
Why Venture Capital—Not Public Markets—Is the Real Opportunity
Despite his bearishness on public equities, Grantham is not pessimistic about innovation. In fact, he’s bullish—just not in the way most investors expect.
He believes the best opportunities today are in venture capital and early‑stage startups, not in the public markets where valuations have already been bid up.
This view aligns with his long‑standing belief that the early phases of technological revolutions—railroads, electricity, the internet—produce enormous value, but that value is captured disproportionately by private‑market innovators rather than public‑market investors.
In other words: AI will change the world, but public‑market investors may not profit from it.
This is a striking stance from a legendary value investor, but it reflects a broader shift in how innovation is financed. Many of the most transformative AI companies are still private, and Grantham believes that’s where the asymmetric upside lies.
Industry Reaction: Dalio, Deutsche Bank, and Bernstein Advisors Agree
Grantham’s warning isn’t happening in a vacuum. Several major voices in global finance are expressing similar concerns.
Ray Dalio: The AI Bubble Is Just Beginning
Bridgewater Associates founder Ray Dalio recently said the AI bubble is still in its early stages, and that investors are increasingly allocating to non‑U.S. assets as valuations in the U.S. become harder to justify.
Deutsche Bank: AI Bubble Is the Top Market Risk of 2026
A Deutsche Bank survey found that more than half of asset managers now view the AI bubble as the biggest market risk heading into 2026.
Richard Bernstein Advisors: "Full‑Blown Frenzy"
Richard Bernstein Advisors warned that excess liquidity has created a "full‑blown frenzy," with speculative behavior spilling into cryptocurrencies and meme stocks.
These perspectives echo Grantham’s view that the AI boom has crossed from optimism into mania.
But Not Everyone Agrees: The Case for AI’s "Hyperscale Advantage"
While Grantham sees a bubble, others argue that the AI boom is fundamentally different from past manias.
Some analysts point to the hyperscale advantage of companies like Microsoft, Amazon, and Google—firms with massive cash flow, global cloud infrastructure, and the ability to deploy capital at unprecedented scale.
Bank of America analysts argue that these companies are not merely speculative plays—they are the backbone of the AI revolution, with real earnings, real demand, and real competitive moats.
This is the core of the counterargument: AI may be expensive, but it’s expensive for a reason.
The question is whether today’s valuations reflect sustainable long‑term profitability or short‑term exuberance.
Grantham’s Historical Lens: Why Bubbles Always Look Rational at the Peak
One of Grantham’s strengths is his ability to contextualize modern markets within centuries of financial history. In his Bloomberg interview, he emphasized that bubbles always feel justified in real time.
During the railroad boom, investors believed railways would reshape the world—and they were right. During the dot‑com era, investors believed the internet would change everything—and they were right.
But in both cases, investors dramatically overpaid for early‑stage companies, and most of those companies disappeared long before the technology reached maturity.
Grantham believes AI is following the same script:
- The technology is real.
- The productivity gains are real.
- The long‑term impact is real.
- But the current valuations are not.
What Investors Should Do Now
Grantham’s message is not to abandon the market entirely. Instead, he offers a more nuanced roadmap:
1. Avoid Overvalued U.S. Mega‑Caps
He believes the biggest risks lie in the most crowded trades—AI‑linked U.S. equities with stretched valuations.
2. Look to Venture Capital and Private Markets
This is where Grantham sees the most compelling opportunities, especially in climate tech, deep tech, and early‑stage AI infrastructure.
3. Diversify Globally
Like Dalio, Grantham believes non‑U.S. assets may offer better long‑term value.
4. Prepare for Volatility
If the AI bubble bursts, the correction could be sharp and broad.
5. Stick to Value Principles
Buy when assets are cheap, not when they’re popular.
Conclusion: A Familiar Warning From a Familiar Voice
Jeremy Grantham has spent decades warning investors about bubbles—and he has been right more often than not. His latest warning about AI is grounded in historical precedent, valuation discipline, and a deep understanding of market psychology.
But unlike past bubbles, Grantham isn’t dismissing the underlying technology. He believes AI will reshape the world—just not in a way that justifies today’s public‑market valuations.
For investors, the takeaway is clear: AI is real. The bubble is real. And the best opportunities may lie where few are looking—early‑stage innovation, not the public markets.