Here's how the AI stock bubble will burst

Renowned investor Jeremy Grantham predicts a long-term bearish outlook for the stock market, viewing the dramatic rally in AI-related stocks as a speculative bubble.
Grantham, who co-founded asset manager GMO in 1977, is a widely followed investor, with a track record of spotting market bubbles.
He predicted the bursting of the dot-com bubble in 2000 and the bear market of 2008, and also correctly predicted the bear market of 2022.
The veteran investor pointed to Shiller's P/E ratio as well as corporate profits, both close at historic highs.
“Remember, if margins and multiples are both at all-time highs at the same time, it's double jeopardy – because waiting somewhere in the future is another July 1982 or March 2009 with all-time low multiples and severely depressed margins.” , Grantham said.
The S&P 500 has risen since late October 2023 to hit consecutive all-time highs, led by technology stocks.
The stock index is up 8% in 2024.
Artificial intelligence chipmaker Nvidia is up another 81% this year, following a nearly 240% surplus in 2023.
Grantham thinks While AI may end up being a game-changing technology for the world, sudden rallies in these stocks based on hopes of long-term potential may not be justified.
“Every technological revolution like this has been accompanied by enormous initial hyperbole and a stock market bubble as investors focus on the ultimate possibilities of the technology, pricing most of the long-term potential immediately into current market prices,” he said.
Grantham, now 85, believes the full effects of technological revolutions such as AI often don't materialize until after an initial bubble has burst.
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