Veteran investor Jeremy Grantham believes the artificial intelligence boom could push the U.S. stock market to its most expensive levels on record, and ultimately lead to a historic decline.
“If you adjust for the value of the stock market relative to GDP, this is the most expensive market in U.S. history,” Grantham said on CNBC’s “Squawk Box.”
The GMO co-founder said he doesn’t know if there was a comparable era, but said the tech bubble of 2000 is the closest analogy. He also highlighted the so-called Buffett Index, which compares the total valuation of the U.S. stock market to the size of the economy in terms of GDP.
According to Longtermtrends.com, the market capitalization-to-GDP ratio mentioned by Grantham is estimated at 235%. This means that the value of the entire stock market is more than twice that of the US economy.
Legendary investor Warren Buffett used this metric to say years ago, “When you get close to 200%, like in 1999 and parts of 2000, you’re playing with fire.”
Graham said the market could potentially peak, although the timing is highly uncertain.
Grantham is a prominent investor known for calling for a bear market, and has issued similar dire warnings in the past, including in March 2024.
At the time, he thought the long-term outlook for U.S. stocks was as bad as at any other point in history, but stocks continued to rise after that warning.
“The long-term outlook for the overall U.S. stock market here looks worse than at any time in history,” Grantham said at the time in a blog post published by Boston-based GMO.
SpaceX’s Grantham
Grantham also mentioned SpaceX after its blockbuster IPO. The stock price soared in the first few days of trading, but has lost momentum. The investor said that while AI is where investors want to put all their money, this creates conditions for over-investment.
He noted that Amazon’s stock price fell 92% after the dot-com bubble, before the company finally “took over the planet.”
SPCX 5 day chart
“The long term is complicated and we don’t know, but will we have an Amazon-like crash? Yes, it’s very likely. And what will actually happen is that we’ll either let the rubble float away on the waves of time, or we’ll end up taking over much of the market like Amazon did,” he said.
He believes SpaceX and its nearly $2 trillion valuation is another sign of the market’s extreme enthusiasm.
He said historians may ultimately view the company’s public market debut as “one of the defining pinnacles of all time.”
“That’s what you see near the top,” Grantham said.
