Grantham Warns of AI Bubble: Opportunities Shift to Venture Capital, Not Public Markets

Legendary investor Jeremy Grantham, co-founder of GMO, has issued a stark warning that the current artificial intelligence (AI) boom is a "classic market bubble" destined to burst. In his new book, *The Making of a Permabear*, Grantham argues that while AI is transformative, excessive speculation and inflated valuations have created conditions for a major correction. He labels today’s U.S. stock market as the third-largest "superbubble" in history, behind only Japan’s 1989 asset bubble and the 2000s housing bubble. Despite AI-driven capital spending and euphoric sentiment, he asserts that elevated prices imply historically low future returns. Grantham urges investors to avoid overvalued public equities and instead focus on venture capital and private startups—where real innovation may still be undervalued. His views align with other top figures: Ray Dalio sees early-stage AI bubbles, while Deutsche Bank reports over half of asset managers rank AI as the top risk for 2026. However, some remain bullish; Bank of America highlights strong cash flows and profitability among leading tech firms as durable support for AI-driven growth.