Veteran investor Jeremy Grantham (Trades, Portfolio) has voiced concerns over the relentless speculation surrounding artificial intelligence (AI, Financial) stocks, labeling it a classic bubble formation. He anticipates a challenging path ahead for the U.S. stock market as this bubble continues to expand, following historical patterns of previous bubbles.
Grantham warns that the burst of the AI bubble could result in substantial losses, drawing parallels to past technological frenzies that temporarily inflated market valuations. He notes that the more grandiose the ideas and inventions, the more the market tends to overvalue them, attracting fervent investment.
Comparing the current AI enthusiasm to the internet boom of the late 1990s and the transformative eras of railroads and electrification in the 1920s, Grantham observes that such technological manias have historically led to spectacular bubbles. He suggests that while significant advancements occur during these periods, they are often followed by market corrections, only for new technologies to have a long-term impact on the world.
Other market commentators have also cautioned investors about AI, pointing to high valuations in the tech sector and unclear returns on large corporate expenditures. Economist David Rosenberg highlights that the market is in a "super bubble," with indicators such as historically high price-to-earnings ratios and a high proportion of household stock holdings signaling an imminent significant correction.
Furthermore, John Hussman (Trades, Portfolio), another bearish forecaster, claims that based on his company's valuation metrics, U.S. stocks appear to be at their most overvalued since 1929. Grantham himself has been a frequent critic, predicting significant declines in the stock market in the coming years. In 2022, he warned of a multi-asset "super bubble" and predicted a 43% drop in the S&P 500 index from its then-current levels. While the benchmark index fell by about 25% in 2022, it has since recovered, gaining 20% in 2023.
