The 'superbubble' in stocks and housing will burst - but the AI boom might delay the crash, Jeremy Grantham says
- The "superbubble" in stocks, housing, and commodities will eventually burst, Jeremy Grantham says.
- But the AI craze may keep stocks afloat for a couple more quarters, he told the Wall Street Journal.
There's a massive bubble in asset prices, but the artificial-intelligence craze might delay its inevitable crash for another few months, Jeremy Grantham says.
"We had a very complicated but fairly standard-looking superbubble, losing air in the traditional way, right up to this recent rally," the market historian and GMO cofounder recently told The Wall Street Journal.
"We're trying to unravel one bubble, and we've got a completely different one that has jumped up on a fairly narrow front," he added.
Grantham diagnosed a "superbubble" spanning stocks, housing, and commodities in January 2022. He declared in September that it was likely in its final stages, and a historic crash seemed imminent. The S&P 500 and Nasdaq ended the year deeply in the red — but have rallied 16% and 32% respectively this year.
A key reason for their resurgence has been the buzz around AI. Chipmaker Nvidia's stock price has skyrocketed by 190% this year, while Microsoft shares have soared by over 40% to record highs — in part because the software giant has invested billions of dollars in ChatGPT's parent company, OpenAI. Other companies with AI exposure, including Tesla and Meta Platforms, also notched huge gains in the first half.
Grantham, who called the dot-com crash in 2000 and the housing bubble's implosion in 2008, told the WSJ that the AI frenzy could fuel the wider stock market for another couple of quarters. But he warned it wouldn't stop the superbubble from eventually popping. He cautioned last year that the S&P 500 might bottom out below 2,500 points — a brutal 44% drop from its current level.
If Grantham's forecast is correct, GMO stands to profit. It has placed bets against several high-flying growth stocks, and loaded up on deep-value stocks that it expects to shine in the years ahead. The downturn will be a "wonderful, generational opportunity to make money," Ben Inker, the firm's co-head of asset allocation, told the WSJ.
GMO has also made wagers on the embattled commercial real estate sector, which has been hit hard by the shift to remote work, steeper borrowing costs, and fearful banks pulling back on lending. For example, it has purchased bonds linked to the Bellagio Resort & Casino in Las Vegas, the WSJ reported.