Renowned investor Jeremy Grantham has declared that the current surge in artificial intelligence-related valuations reflects a classic speculative bubble, citing inflated enterprise multiples and excessive capital allocation. His warning comes as AI-focused stocks have surged over 200% year-to-date in major indices.
- AI-related equities now exceed $14.3 trillion in market cap, up 78% in nine months.
- OpenAI and Anthropic valued at $100B+ and $50B+ respectively, with P/S multiples above 250x.
- Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOGL) have AI segments contributing less than 12% of FY2025 revenue.
- ARK Innovation ETF (ARKK) saw $8.4B in inflows during Q4 2025.
- Short interest in leading AI stocks rose 41% in Q4 2025.
- Some institutional investors reduced AI exposure by up to 20% in Q1 2026.
Jeremy Grantham, co-founder of GMO and a long-time market forecaster, has issued a stark warning that the AI investment frenzy mirrors the dot-com bubble of the late 1990s. Speaking in a recent public address, Grantham emphasized that the current market behavior—marked by soaring valuations for AI startups with no revenue and dominant tech firms trading at unprecedented price-to-sales ratios—exhibits all the hallmarks of a speculative fever. He noted that the aggregate market capitalization of AI-related equities has reached $14.3 trillion, a 78% increase in just nine months. The nut graph lies in the disconnect between valuation and fundamentals. Grantham pointed to companies like OpenAI and Anthropic—valued at over $100 billion and $50 billion respectively—trading at price-to-sales multiples exceeding 250x, despite minimal or no profitability. Meanwhile, major tech giants including Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOGL) have seen their AI-focused segments contribute less than 12% of total revenue in FY2025, yet their stock prices continue to rise on AI narratives. Market impact is already evident. ETFs focused on AI infrastructure, such as the ARK Innovation ETF (ARKK), have seen inflows of $8.4 billion in Q4 2025, while short interest in AI leaders has surged by 41%. Grantham warns that if AI adoption fails to deliver sustained revenue growth over the next three years, a sharp correction—potentially a 30% to 50% decline in valuations—could follow, affecting not just tech stocks but broader equity markets. Investors, especially retail participants with concentrated exposure to AI-themed funds, are now facing heightened risk. Institutional investors, including pension funds and sovereign wealth funds, are beginning to reassess their exposure, with some reducing AI allocations by up to 20% in Q1 2026, according to internal reports.