Investor Jeremy Grantham Warns US Stock Market Hits Most Overvalued Level Ever

Veteran investor Jeremy Grantham has warned that the US stock market has reached its highest valuation in history, driven by the surge in artificial intelligence (AI) investments. Speaking on CNBC's Squawk Box, Grantham said that based on market capitalization relative to GDP, with some adjustments, the current market is the most expensive ever in American history. He compared the current situation to the 2000 tech bubble, calling it the closest historical analogy.

Grantham highlighted the "Buffett Indicator," which compares the total US stock market value to the country's GDP, as a key measure of market risk. Currently, this ratio stands at approximately 235%, meaning the stock market's total value is more than double the size of the US economy, according to Longtermtrends.com. Warren Buffett has previously warned that when this ratio approaches 200%, as it did in 1999 and early 2000, investors are "playing with fire."

Known for his bearish market predictions, Grantham issued a similar warning in March 2024, stating that the long-term prospects for the broad US stock market looked as poor as at almost any other time in history, though that forecast has not yet materialized. In his latest apocalyptic forecast, he claims AI represents the biggest investment bubble ever in the US and warns of a potential 70% drop in AI-related stock prices.

Additionally, Grantham dismissed Bitcoin as "useless," predicting it will eventually become worthless, fading away quietly rather than with a dramatic crash. He described Bitcoin as an unstable store of value. Grantham's warnings come amid ongoing debates about market valuations and the sustainability of recent tech-driven growth.