The AI Bubble and What Comes After

Jeremy Grantham, the veteran investor who called the dot-com crash and the 2021 meme stock frenzy, is now warning that the current AI boom has all the hallmarks of a classic bubble — and that a 70% decline in the highest-flying stocks "would not be unexpected." His interview, which has racked up over 5 million views, has rattled retail investors who are trying to figure out whether the AI rally is real or a repeat of past manias. The host of this episode walks through Grantham's argument, contrasts it with Warren Buffett's more guarded signals, and examines what a bust might actually look like.

The Bubble Framework: What Grantham Sees

Grantham defines a bubble in straightforward terms: everyone gets excited about something obvious, they pour money in, stocks go up, and then eventually there is a big collapse. The current AI boom, in his view, fits this pattern perfectly. He points to the Shiller CAPE ratio, which measures stock market valuation adjusted for inflation over a ten-year cycle. That ratio currently sits at 40.7 — just shy of the all-time high of 44.19 reached during the dot-com bubble. Some people argue the metric no longer matters, which Grantham notes is itself something people say at the top of bubbles.