The veteran bubble-spotter says the US market is the most expensive in American history, with AI stocks potentially facing 70% declines
Jeremy Grantham has spent six decades telling investors they’re wrong about valuations. His track record suggests they should probably listen.
The GMO co-founder appeared on CNBC on June 26 with a blunt assessment: the US stock market is now the most expensive it has ever been in American history. His evidence is the modified market-cap-to-GDP ratio, commonly known as the Buffett Indicator, which he pegs at roughly 235%. For context, that metric was considered alarmingly high when it crossed 150% during the dot-com era.
The AI paradox at the heart of Grantham’s thesis #
Grantham presented what he describes as a dual framework. Either we’re in an extreme bubble that will eventually retrace to historical trend lines, or we’re genuinely in a new era driven by artificial intelligence.
Capital expenditures from major tech companies, including Amazon, Alphabet, Meta, and Microsoft, are approaching $300 billion. Grantham’s January 2026 report made a striking claim: strip out AI investments, and the US economy would likely be looking at flat or declining growth rates.
Grantham singled out companies like Palantir and Tesla as exhibiting signs of speculative excess, warning that AI-related stocks could see declines of up to 70% if market conditions revert to historical norms.
The bubble detective’s resume #
Grantham called the Japanese market bubble of the late 1980s. He warned about the dot-com crash before it happened. He flagged the housing crisis of the mid-2000s before mortgage-backed securities became a household term of despair.
The current CAPE ratio sits around 40x according to Grantham’s analysis. The dot-com crash ultimately erased roughly $5 trillion in market value and took the Nasdaq nearly 15 years to recover its previous highs.
What broke the bear, and what could bring it back #
The post-2022 bear market ended because ChatGPT launched in December 2022 and sparked a frenzy of AI enthusiasm that redirected capital flows almost overnight.
A 235% market-cap-to-GDP ratio and a 40x CAPE ratio don’t guarantee an imminent crash. But these metrics do suggest that the margin of safety for new money entering the market is historically thin.
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