Legendary investor Granttham warns: The AI boom has created a bubble within a bubble, and the market has overextended its future earnings for many years to come.

Legendary investor and GMO co-founder Jeremy Grantham has issued another warning: the AI boom has created a “bubble within a bubble,” and he advises young people not to bet their careers on Wall Street.

In his recent memoir, Grantham wrote that since 2020, the overall U.S. stock market has been in a bubble, and the launch of ChatGPT at the end of 2022 injected new speculative momentum into an already shaky market, forming a “bubble within a bubble.”

He pointed out that this AI bubble “has almost no clear historical analogy,” but its trajectory is likely to “at least temporarily decline,” ultimately leading to the bursting of the broader market bubble.

Grantham is pessimistic about the market outlook. He warns that the recent massive rise in U.S. stocks has already overextended expected future returns for many years, making the long-term outlook “one of the worst in history.” Investors face either “long-term subdued returns” or a “deep bear market followed by a return to normal levels.”

He also predicts that years of persistent rate hikes, along with “absurd speculative behavior” during and after the pandemic, will ultimately “end in an economic recession.”

“Since at least 2020, the U.S. market has been in a bubble,” he wrote, emphasizing that although the timing of the bubble’s burst is unpredictable, all bubbles in history have eventually burst.

The 87-year-old Grantham is known for successfully predicting three market bubbles, including the dot-com crash in 2000 and the 2008 bull market top, but his recent forecasts have not been accurate.

In his book, Grantham disclosed that he had been researching rumors about the “mysterious virus” since January 2020, concluding it would pose a serious health and economic threat, especially if countries responded poorly.

He then took measures to defensively adjust the investment portfolio of his family charity, the Grantham Environmental Foundation, to prepare for potential stock market declines, and advised GMO colleagues to get ready for market turbulence in advance.

“Here I can proudly say that my judgment was ahead of most people,” he wrote. “The bad news is that when the dust settles, our trades—lacking leverage and sufficient strategic skill—are almost as if we did nothing.”

Grantham admits that this relatively calm pandemic trading reminded him that “I performed well in research and judgment, but sometimes mediocre in execution.”

Not recommending young people pursue finance

In his memoir, Grantham also reflected on the financial industry. He acknowledged that investment management is intellectually challenging but has limited social significance. He emphasizes instead the importance of engineering, agriculture, and scientific research for future societal stability.

This value system extends to his attitude toward AI—he does not deny technological progress but warns against the over-financialization of technology by capital markets.

He believes that true innovation requires time, trial and error, and capital patience, whereas bubble environments often distort resource allocation.

“If I could start over, I would prefer to engage in pursuits with genuine social value. Achieving breakthroughs in such critical fields would be more fulfilling and exciting than making the same amount of money in the stock market.”