Legendary investor Grantham warns again: AI is a typical bubble that will burst eventually. The current opportunity is not in the stock market but in the venture capital field.

Legendary investor and co-founder of GMO Investment Jeremy Grantham, known for accurately predicting market bubbles such as the dot-com bubble in 2000 and the financial crisis in 2008, recently pointed out in an interview that Artificial Intelligence (AI) is a classic market bubble waiting to burst. Grantham's core belief is surprisingly simple. He states that, in the long run, the only consistently reliable strategy is to buy assets when they are cheap - in other words, classic value investing. Most of the so-called "excess returns" that investors believe in can be attributed to the same concept. For example, the often-mentioned small-cap premium is more a result of a mechanism rather than a size advantage - fund managers are forced to sell stocks that have risen out of the small-cap category and buy stocks that have fallen into the category, essentially constituting a structural rebalancing towards value investing. What does this mean for investors today? Grantham points out that the answer is clearly not in U.S. listed stocks. While AI-related capital expenditures and market enthusiasm have driven stock prices higher, the mathematical laws show no mercy - the higher the current prices climb, the lower future returns may be. Grantham also adds that AI cannot escape the long-term laws of the market. Just like the railways in the 19th century or the internet in the late 1990s, this is a truly transformative technology - and precisely because of this, it forms the basis of a "giant bubble." Equity holdings and valuation levels have far exceeded reality, and before the ultimate winners emerge, a significant market correction will be inevitable. However, this does not mean that one should completely abandon the U.S. market. Grantham remains optimistic about startups, believing that the most attractive opportunities are not in the public markets, but in the venture capital space. It is worth noting that this is not the first time Grantham has issued a warning about the AI bubble. Last February, Grantham stated that like all world-changing technologies, AI will eventually collapse and harm investors' interests. He likened the current booming AI technology to the railway expansion in 19th century Britain, calling it "one of the most striking failures," despite the significant funds flowing into this network that boosts GDP and productivity, "every truly important new technology has a bubble." In March last year, Grantham also warned that the U.S. stock market was in a "super bubble" state, ranking third in size in history, behind the 1989 Japanese bubble and the real estate bubble of the same period. Concerns about the bursting of the AI bubble were one of the main reasons for the poor performance of the U.S. stock market in the last two months of last year, as investors became wary that the technology had yet to produce the profits necessary to justify the massive capital spending by tech giants. A survey conducted earlier last December by Deutsche Bank Aktiengesellschaft showed that more than half of the 440 asset managers surveyed listed the AI bubble as their top concern for 2026. Jim Reid, director of global economics and thematic research at Deutsche Bank who conducted the survey, said the results clearly underscore one thing, risks of an AI/tech bubble are overshadowing everything else. Bridgewater Associates founder Ray Dalio warned earlier this month that the AI frenzy that had previously driven tech stocks in the U.S. to soar had "now entered the early stages of a bubble." Dalio stated, "Clearly, investors are more willing to allocate to non-U.S. assets as opposed to U.S. equities. Similarly, they also favor non-U.S. bond assets over U.S. bonds and U.S. cash undoubtedly, there is enormous uncertainty about the future policy direction of the Federal Reserve and the prospects for productivity growth. All signs point to the high probability that the new Chairman of the Fed and the FOMC will likely lean towards keeping nominal and real interest rates lower. While this will provide support to asset prices, it will also further fuel bubbles." Richard Bernstein Advisors (RBA) also issued a warning earlier this month that excess liquidity was pushing asset prices to levels far above fundamental support, and the current market bubble had spread beyond AI, forming a "comprehensive frenzy." Mike Contopoulos, Deputy Chief Investment Officer of the firm, recently stated, "We are currently in some sort of 'comprehensive bubble.' This is not just AI - cryptocurrencies, meme stocks, special purpose acquisition companies (SPACs), investment-grade bonds, high-yield bonds, all are not exempt." This senior professional, with 25 years of market experience and former head of high-yield strategy at Bank of America Corp, pointed the finger at loose monetary and fiscal policies, believing they had led to this valuation frenzy detached from fundamentals. However, many market participants are still firmly betting on the AI wave. Strategists from the global research department of Bank of America Corp stated that they have not yet seen any degree of an AI bubble. A research report by the bank showed that the global AI arms race is still in the "early to mid-stage." Vanguard, one of the world's largest asset management giants, pointed out in a research report that the AI investment cycle may have only completed 30%-40% of its final peak, although the risk of a significant pullback in large tech stocks is indeed increasing. Furthermore, Philippe Laffont, the founder and portfolio manager of Coatue Management, stated that the current AI investment boom has a very important difference from the "dot-com era" - he called it "super-scale advantage." This refers to cash-rich tech giants, including Alphabet Inc. Class C(GOOGL.US), Microsoft Corporation(MSFT.US), and Amazon.com, Inc.(AMZN.US), expected to invest over $500 billion next year in massive AI computing infrastructure. Unlike the dot-com era, these cash-rich and profitable tech giants are the core driving force behind this AI wave, which is fundamentally different from the leaders in the dot-com era when most were fledgling tech companies far from turning a profit.