Jeremy Grantham, the GMO co-founder known for calling past market bubbles, warned that an AI bubble has pushed US stocks to their most expensive levels in American history and could set up a decline of as much as 70%.

The veteran strategist made the remarks on CNBC, and his core advice was blunt. He urged investors to step away from US equities and look abroad.

An AI Bubble at Record Valuations

Grantham said the market’s price-to-earnings ratio has averaged more than 60% higher since 2010 than over the prior century. He ties that premium to years of cheap money. He does not dispute that AI is transformative. Instead, he says near-universal faith in the technology has fueled dangerous overinvestment, echoing growing AI bubble fears across Wall Street.

His bubble model holds that every prior speculative extreme eventually reverts to trend. A retreat toward those norms, he says, points to a drop closer to 70% than 50% in the biggest winners. The timing, he conceded, could land anywhere from two weeks to two years.

Grantham called the dot-com peak in 2000 and warned of a US housing bubble in 2007. That record carries weight, though his 2021 epic-bubble warning proved early as stocks climbed before stumbling in 2022. He is not alone now, as investor Ray Dalio has flagged similar liquidity risks.

Why Crypto Investors Are Watching

A 70% unwind would not stay inside the stock market. Bitcoin (BTC) now trades like a tech stock, so a deep risk-off move tends to hit crypto first and hardest.

The strain already shows. US spot Bitcoin ETFs posted a record 30-day outflow of $6.35 billion through mid-June, according to Galaxy Research.

Bitcoin was trading near $59,663 during the pullback. Grantham, meanwhile, dismisses crypto, repeating his view that the token is worthless and headed toward zero.

His prescription favors non-US stocks, bonds, and precious metals over expensive American names. Not everyone shares the alarm.

Bulls note that today’s AI leaders earn real profits, unlike many dot-com-era firms. Federal Reserve Chair Jerome Powell has called AI spending real economic activity, not pure speculation.

“I won’t go into particular names, but they actually have earnings… These companies actually have business models and profits and that kind of thing. So it’s really a different thing [from the dot-com era],” he said.

Whether Grantham proves early or right, his record means few will dismiss the warning outright.

For crypto holders, the takeaway is that Bitcoin’s fate now rides largely on how long the AI trade holds. The coming round of AI earnings will test how much of the optimism is justified.

Source: BeInCrypto