Jeremy Grantham is an expert in stock market bubbles. In the 1980s he spotted the Japanese bubble. He also, rightly, refused to rush into the tech bubble that popped dramatically during the dotcom crash.
Now, with all eyes on the astronomical valuations AI firms are commanding, does he think a bubble is emerging?
In the latest episode of MoneyWeek Talks, Grantham told MoneyWeek editor Andrew Van Sickle that historians a century from now will be writing about this moment in the same way they write about the South Sea Bubble, one of the first and most significant financial crashes in history.
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Grantham points to SpaceX. He said: “The SpaceX prospectus is actually unbelievable. Mining asteroids and colonies on Mars and moving through space and a projection of revenue streams, 90% of which seem to relate to AI.
“And it’s not clear that their version of AI, which is at the moment having its bottom kicked around the block by Anthropic and the rest of the boys is going to be even around. Forget 90% of this colossal income stream of the biggest enterprise in the history of man.
“And of course, they’re running at huge losses at the moment. What an act of faith, I mean, give me a break. Talk about tulips.”
That is not to say that Grantham is opposed to the transformative nature of AI, though. He sees that it is impressive. However, he is cautious about the state of the industry at the moment.
He cited the example of the railroad boom, which he sees as a similar crucial technological advancement that hugely boosted productivity. But the market crashed still.
“People don’t realise that the more obvious and important the idea, the more likely you are to attract too much capital and have a market bust.”
“The railroads transformed our lives. They added enormous productivity. And yet they were so obviously going to do that, that everyone built too many railroads, and everyone lost their money. That will happen in AI.”
He added that looking at the history of the Magnificent Seven and comparing it to their future plans shows two different worlds.
“Looking back, you have seven monopolies. Amazon dominates retail sales, Tesla gets a leap ahead in EVs and so on. They each killed off their junior competitors, bought the exciting up-and-coming competitors, and bestrode the world.”
But the future looks drastically different. Instead of seven monopolies, there is one ultimate goal that they are all aiming for – alongside other firms snapping at their heels. That goal is artificial intelligence.
Grantham says the firms believe that whoever gets there first will have a license to make more money than anyone has ever made at anything in history.
“They’re all saying the main risk is not spending enough. ‘We will spend our vast cashflows’, ‘my 200 billion is bigger than your 107 billion’ – it’s like a kind of gorilla fest in that sense and they all pile into the ring to fight to the death.
“There can only be one. They’re going to fight until someone survives. Now, if you think this is like the seven distinct monopolies, you’re crazy.
“This could be the most vicious fight to the end that we have ever seen, starting now. And there are plenty of signs of it already. In that sort of fight, they do not make lots of money and the stocks get crushed. And then they emerge from the wreckage, like the internet.
“The railroads rose from the ashes, and this will rise from the ashes.”
Listen to MoneyWeek Talks for our full interview with Jeremy Grantham. You can watch the podcast on YouTube, or listen to it wherever you get your podcasts.
About the podcast
MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.
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