Billionaire who called dot-com crash warns of 'major collapse,' urges investors to hold cash

Jeremy Grantham, the prominent Wall Street investor and noted market pessimist, has called the current AI market "the biggest bubble in history" and urged investors to proceed with caution.

Grantham appeared Thursday on the British podcast "The Diary of a CEO," saying, "We are living in an AI bubble right now," and adding that "the data suggests we are historically close enough to a peak that it is entirely explicable."

Asked whether a bubble collapse could occur within the next few years, he said, "Certainly within a few years — and possibly within days, weeks or months."

He pushed back against the notion that bubbles are fraudulent. "People tend to think bubbles are a scam, but that's not true," he said. "They tend to form around the most important technologies and ideas. The better the idea, the more money pours in and the bigger the bubble grows."

He then cited historical examples. Railroads, he said, transformed the world but saw share prices collapse after attracting excessive capital. Amazon, he added, surged six to seven times in 1999 before falling 92 percent.

On AI itself, Grantham called it "one of the greatest ideas to emerge in the past several hundred years," but warned that "signs of manic euphoria are everywhere."

He was particularly pointed about the investment frenzy surrounding SpaceX, the aerospace and AI company. "They define a quarter of global GDP as their target market," he said. "In 50 or 100 years, people will talk about SpaceX and its business plan the way they talk about the South Sea Bubble."

For ordinary investors navigating the current environment, he recommended holding bonds and cash, along with small positions in metals such as gold and silver.

He also advised investors seeking equity exposure to look outside the United States. "Non-US stocks have significantly outperformed since early last year," he said. "You can find excellent broad indexes — particularly in Japan, Canada and Australia."

On emerging markets, he said he was confident they would "navigate the next 10 to 20 years well," while expressing doubt about the US market. "I cannot be confident the US market will be intact in five or 10 years," he said. "Current prices are simply too expensive."

However, Grantham was also skeptical about using real estate to diversify a portfolio. "By historical standards, it is quite expensive — it has risen more than tenfold since 1994," he said.

Grantham is co-founder of global asset management firm GMO, which manages approximately 130 trillion won ($84.1 billion) in assets.

A longtime student of market bubbles, he has predicted several major financial collapses, including the 2000 dot-com bust and the 2008 global financial crisis. He currently argues that the third-largest bubble in market history is now underway.