'Don't Own US Stocks': Jeremy Grantham Warns AI Boom Could End in a 70% Drop

Veteran investor Jeremy Grantham warned retail savers to avoid US stocks, saying the artificial intelligence boom has created the largest stock market bubble in American history that could end in a 70% decline. Grantham, co-founder of GMO, advised diversifying into international or emerging-market funds, bonds, cash, and precious metals, predicting the AI-driven rally will collapse similarly to past bubbles like the dot-com crash.

'Don't Own US Stocks': Jeremy Grantham Warns AI Boom Could End in a 70% Drop He suggests diversifying into international or emerging-market funds, which have outperformed the US since last year Veteran investor Jeremy Grantham has told retail savers to avoid American shares, warning that the artificial intelligence boom https://www.ibtimes.co.uk/tech-stocks-tumble-fed-signals-higher-rates-1804673 has inflated the largest stock market bubble in US history and could end in a fall of about 70 per cent. 'Don't own US stocks,' the 87-year-old co-founder of Boston investment firm GMO said on The Diary of a CEO , describing it as 'a simple strategy that you can act on.' Grantham, who at his peak oversaw up to $165 billion £125 billion in assets and whose firm still manages around $85 billion £64 billion , said valuations had moved beyond anything he had seen in six decades. 'This is, I think, the biggest investment bubble in American history,' he said. The interview carried a note that his comments were his own and not those of GMO. Why Grantham Warns of a 70% Fall Asked what a collapse would mean for ordinary investors, Grantham said the stocks that had risen most, led by AI https://www.ibtimes.co.uk/satya-nadella-warns-ai-could-hollow-out-industries-1802717 , would fall hardest. 'A 70% decline would not be unexpected,' he said. He set the figure against past crashes. The NASDAQ fell 82 per cent after the dot-com peak, he said, while the 1929 crash that preceded the Great Depression ran to about 80 per cent. The Nifty Fifty stocks of the early 1970s lost 65 per cent in inflation-adjusted terms. Grantham pointed to Japan as the biggest bubble in history. At its 1989 peak, the market traded at 65 times earnings and briefly exceeded the entire US market in value, he said. It then fell for two decades and took 35 years to recover. US shares, he estimated, now trade at 35 to 40 times earnings, close to the level reached at the 2000 dot-com peak. What a Crash Would Mean for Households Grantham said the effects would reach beyond Wall Street. A downturn would push the high flyers to lay people off, he said, and households that had felt wealthier as portfolios rose would spend less as they shrank. He expected some job disruption and said major bubbles had historically been followed by 'really tough times' for the wider economy. He also flagged housing. UK homes, which sold for about 3.4 times family income in 1994, now cost more than 10 times in parts of the country, and he suggested a fall of around 30 per cent would still leave them expensive by historical standards. Where Grantham Says to Put Money Instead His alternative is to diversify away from US equities. Investors who hold shares should own them outside America, he said, through broad world ex-US or emerging-market index funds covering Europe, Japan, Canada, and Australia. Those markets, he noted, had handsomely outperformed the US since the start of last year. The rest of a portfolio, in his view, belongs in bonds, cash, and a small holding in precious metals such as gold and silver. He pointed to US government bonds yielding around 4.5 per cent, with a 10-year Treasury paying about 4.46 per cent and an equivalent Apple corporate bond near 4.7 per cent. Property, he said, was 'pretty darn expensive by historical standards.' On cryptocurrency, Grantham said Bitcoin was 'an unnecessary piece of nonsense that facilitates nothing except criminals moving money' and predicted it would eventually fall to zero. Why Wall Street Stays Quiet Grantham said investors should not expect a warning from the advice industry. 'You will not receive this advice from investment advisors because they'll lose a lot of business,' he said, arguing that big firms had stayed silent through every crash since 1929 because fighting a bubble costs them clients. He drew on his own record. GMO warned clients away from the dot-com bubble https://www.ibtimes.co.uk/bill-ackman-market-parallels-dot-com-bubble-1800926 more than two years before it broke and lost a large share of its business while the market kept rising. Grantham said US equities had then lost money over the decade from 2000 to 2010, ending lower than where they began. Grantham has called the Japanese bubble of 1989, the dot-com crash, and the 2008 housing collapse. On the timing of the next one, he said only that the peak could be very soon. Disclaimer : Our digital media content is for informational purposes only and does not constitute investment advice. Please conduct your own analysis or seek professional guidance before investing. Remember, investments are subject to market risks, and past performance does not guarantee future results. © Copyright IBTimes 2025. All rights reserved.