Doomsayer Jeremy Grantham says Artificial Intelligence is a Bubble set to burst

Ever-Bearish Grantham commented that the Artificial Intelligence hype is a bubble that has yet to burst. He compared AI to the 19th-century expansion of the British railroads when investors lost their money due to the hype surrounding the technology.

Jeremy Grantham, Co-founder of Boston-based GMO, compared the booming Artificial Intelligence technology to the 19th-century British railroad expansion. He said the AI hype is a bubble set to burst, just like other tech manias throughout history. 

Jeremy Grantham suggests AI hype is a bubble that has yet to burst

The Co-founder said artificial intelligence was pushing humanity towards a more efficient future. He added that just like any other world-changing technology, it would eventually crash and hurt investors. 

Speaking at the latest Merryn Talks Money podcast, the investor commented that during the 19th-century railroad boom, investors lost their money when the bubble burst. Grantham said investors put their money into a network that elevated GDP and productivity. He suggested that every important new technology had a bubble around it that eventually came crashing down. 

Jeremy Grantham speaking on Merryn Talks Money podcast | Source: Screenshot taken on 28-02-2025 from Bloomberg UK podcast via YouTube

The investor said the post-pandemic surge in equities was similar to the 2000 tech bubble, whose deflation was interrupted by speculation on AI. Grantham commented that the introduction of OpenAI’s ChatGPT added much-needed capital to the economy in 2022. 

He speculated that the industry would eventually crash out smaller investors like the Internet did in the dot-com boom. The investor added that the Internet was expected to change everything at the time, and investors put a lot of money into dotcoms as they anticipated profit after the market boom. He said this led to massive losses on the investors’ part after the crash. 

Grantham commented that great things happened in the 98-99 internet phase. He added that the companies overdid themselves in the short term, which was the more likely roadmap for the Artificial Intelligence industry. Grantham also acknowledged that despite the internet developments in the 90s crashing out, they were able to recover and change the world in the long term. “I expected the same to happen to artificial intelligence in the next few years,” he added. 

Grantham noted that despite the crash, players such as Amazon still gained from the market. He emphasized that the AI industry could not escape the trend, saying it would be disruptive, especially after the bubble popped. The investor mentioned that only a few winners would ultimately reap the dividends. 

During the interview, Grantham emphasised that the AI Era would need a government that ensured wealth flowed to lower levels through taxation and welfare. If this was not achieved and wealth concentrated at the top, society could experience famine or a revolution. 

The business mogul noted that Artificial Intelligence was important and would change the world, adding that it was impossible to know how and whether the changes would be entirely beneficial. 

Economists predict investors may suffer losses in the AI industry

Grantham also commented on the rise of cryptocurrencies and digital assets. He warned against optimism, saying Bitcoin and other cryptocurrencies did not produce anything. The investor acknowledged they were speculative, adding that the digital assets were not a medium of exchange. 

David Rosenberg, a market commentator, also contributed to the AI discussion. He warned investors against blind investments and pointed out the billions of investments made by Big Tech with no promise of return in the artificial intelligence industry. 

David Rosenberg speaking about the current market conditions and the AI boom | Source: Screenshot taken on 28-02-2025 from RiskReversal Media on YouTube

The economist said the market was in a bubble headed for a correction. He noted the industry indicators of a historically high price-to-earnings ratio and a high share of household stock ownership. 

Josh Hussman also warned that overly speculative market bubbles rarely ended well for traders. He added that historically, stocks had a “limit” to speculation before experiencing sharp declines. Hussman compared the AI stock valuations to 1929 and 2021 before the market crashed, saying the valuations looked equally extreme. 

Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot