Jeremy Grantham Warns of a 70% Drop in U.S. Stocks on AI Bubble Fears
Grantham says U.S. tech and AI stocks look extremely expensive, and a correction could also spill over into Bitcoin and spot ETFs.
Key Takeaways
- Jeremy Grantham says an AI bubble has pushed U.S. stocks to record valuations.
- He warns that the market’s biggest winners could fall by as much as 70%.
- Grantham says investors should steer clear of U.S. stocks and consider foreign markets instead.
Jeremy Grantham, co-founder of GMO and a longtime market bubble watcher, says an AI bubble has driven U.S. stocks to the most expensive levels on record. He thinks the biggest winners could still be headed for a drop of as much as 70%. His advice to investors is simple: stay away from U.S. stocks and look abroad instead.
AI Bubble and Historical Valuations
Grantham says the market’s price-to-earnings ratio has run more than 60% above its century-long average since 2010. In his view, that premium has been fueled by years of cheap money. He does not deny that AI is a major technology, but he argues that the near-total faith in it has encouraged excessive speculation. His bubble framework suggests that every major mania eventually snaps back to the long-term average, often with a sharp correction. That kind of move can happen quickly, with the timing ranging from a few weeks to as long as two years.
Impact on Crypto and Broader Markets
A sell-off that severe would not stop with stocks. Bitcoin (BTC) has increasingly traded like a tech stock, which means it is often among the first assets to get hit when investors move away from risk. Recent market data points in the same direction: U.S. spot Bitcoin ETFs recorded a record outflow of $6.35 billion over the 30 days through mid-June. During the latest pullback, Bitcoin was trading near $59,663. Grantham is still deeply skeptical of crypto and says Bitcoin is worthless, with a price that could eventually fall to zero.
Why This Warning Matters for European Investors
For European investors, Grantham’s warning matters because a sharp drop in U.S. stocks, along with pressure on Bitcoin, could spill over into European crypto markets and broader portfolios. The heavy concentration in AI-linked tech names, combined with how tightly global markets are connected, makes this bubble worth watching closely. It may also strengthen the case for looking at non-U.S. stocks, bonds, and precious metals as alternatives to an expensive U.S. market.
