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Veteran investor Jeremy Grantham warns that the artificial intelligence boom has driven the U.S. stock market to historically elevated levels that could culminate in a major market correction.
“Based on the value of the stock market relative to GDP, with adjustments, this is the most expensive market in American history,” Grantham told CNBC’s “Squawk Box.”
While he sees no exact historical parallel, the technology bubble of 2000 remains the closest analogue. Grantham also cited the so‑called Buffett indicator, which compares total stock‑market value to GDP.
The market‑capitalisation‑to‑GDP ratio—often referred to as the Buffett indicator—has risen to about 235 %, according to Longtermtrends.com. This means the total equity market is more than twice the size of the U.S. economy.
Legendary investor Warren Buffett has long warned that when the ratio “approaches 200 % — as it did in 1999 and part of 2000 — you are playing with fire.”
Grantham stressed that, despite timing uncertainty, the market could be close to a peak.
He is a respected investor known for correctly forecasting bear markets and has issued similar gloomy outlooks before, most recently in March 2024.
At that time, he predicted that the long‑term outlook for U.S. equities was among the weakest in history, though stocks continued to climb after his warning.
“The long‑run prospects for the broad U.S. stock market here look as poor as almost any other time in history,” he said in a blog post released by Boston‑based GMO.
Grantham on SpaceX
Grantham also addressed SpaceX’s recent blockbuster IPO. The shares surged in the first few days but have since lost momentum. He noted that investors are heavily focused on AI, creating fertile ground for excess speculation.
He pointed to Amazon’s experience, where shares fell 92 % after the dot‑com bubble before the company eventually “inherited the earth.”
SPCX 5-day chart
“The long term is complicated, I don’t know, but is it going to have a crash like Amazon? Yes, very likely. And then what happens is indeed it may float away debris on the waves of time, or it will inherit a lot of the market, like Amazon did,” he said.
SpaceX’s roughly $2 trillion valuation, he believes, is another sign of extreme market enthusiasm.
He added that historians may eventually view the company’s public debut as “one of the defining peaks of all time.”
“It’s the thing you see around the top,” Grantham observed.
