Jeremy Grantham warns AI bubble could burst

• Investor Jeremy Grantham said artificial intelligence represents the largest investment bubble in U.S. history and warned leading AI stocks could fall by as much as 70%.
• Grantham recommended investors reduce exposure to U.S. equities in favour of international stocks, bonds and precious metals.
• He also dismissed Bitcoin (CRYPTO:BTC) as a speculative asset, predicting it will eventually become worthless despite its continued popularity.

Investor Jeremy Grantham, co-founder of GMO, said artificial intelligence has created the largest investment bubble in U.S. history, warning that leading AI stocks could decline by as much as 70% while urging investors to diversify into international assets.

Grantham compared the current enthusiasm for AI with previous speculative booms such as railways and the dot-com era, arguing that transformative technologies can succeed commercially even if investor returns collapse after valuations become excessive.

"The great bubbles always occur around the very most important ideas," Grantham said during an interview on The Diary of a CEO, adding that, "This is, I think, the biggest investment bubble in American history."

He described SpaceX as an example of speculative market behaviour, criticised elevated U.S. equity valuations and recommended allocating around 60% of investments to broad non-U.S. equity indices alongside bonds, precious metals and selected real estate.

Grantham also argued that investment firms rarely advise clients to leave overheated markets because doing so conflicts with commercial incentives, citing GMO's experience of losing clients while warning about the dot-com bubble before its collapse.

Turning to digital assets, Grantham said he has never owned Bitcoin (CRYPTO:BTC) and believes it functions primarily as a speculative asset rather than a reliable store of value or widely accepted payment method, adding that he expects it will eventually fall to zero over the long term.

The interview reflected Grantham's personal views rather than those of GMO and also included his opinions on housing affordability, wealth inequality and the importance of maintaining cash reserves and practical skills before any potential market downturn.

At the time of reporting, Bitcoin price was $60,056.46.