Jeremy Grantham warns AI boom pushed U.S. stocks to record high

Jeremy Grantham, a longtime capitalist known for bearish marketplace calls, told CNBC's "Squawk Box" that AI-driven enthusiasm has carried U.S. equities to valuations ne'er earlier seen successful the country's past — and that a terrible downturn whitethorn prevarication ahead.

"Based connected the worth of the banal marketplace compared to GDP, with modifications, this is the astir costly marketplace successful American history," Jeremy Grantham, co-founder of concern steadfast GMO, told CNBC.

Among the metrics Grantham cited was a ratio comparing full banal marketplace worth to gross home merchandise — a measurement sometimes known arsenic the Buffett indicator — which has climbed to 235%, putting the marketplace astatine astir 2 and a fractional times the size of the underlying economy. Legendary capitalist Warren Buffett erstwhile said that erstwhile the indicator "approaches 200% — arsenic it did successful 1999 and a portion of 2000 — you are playing with fire."

Grantham said the closest humanities parallel is the exertion bubble of 2000, though helium acknowledged the timing of immoderate imaginable highest remained uncertain.

The GMO co-founder besides flagged the caller public-market debut of SpaceX arsenic a informing sign. Despite the company's astir $2 trillion valuation, Grantham said historians whitethorn yet presumption its listing arsenic a textbook awesome of a marketplace astatine its zenith — "one of the defining peaks of each time," helium said, adding: "It's the happening you spot astir the top."

To exemplify the risks AI enthusiasm tin airs adjacent to companies that yet succeed, arsenic a lawsuit survey successful AI-era risk, Grantham invoked Amazon, which shed 92% of its banal worth successful the dot-com illness earlier yet dominating the markets it had erstwhile lone promised to disrupt. He said a akin clang for an AI-era elephantine was "very likely," though helium near unfastened the question of which firms would yet endure.

Investors are progressively disquieted astir whether spending connected AI volition really pb to profits. Analysts and task capitalists person pointed retired risks similar crowded markets, analyzable concern structures, and the accidental that falling nationalist institution values could impact backstage AI firms. Microsoft's banal has besides dropped, hitting a 52-week debased arsenic investors go frustrated with the precocious costs of gathering AI infrastructure.

It is not the archetypal clip Grantham has sounded the alarm: a March 2024 blog station carried a stark connection astir U.S. equity prospects, yet the rally pressed connected careless — a reminder of the trouble of translating bearish condemnation into close timing.