Veteran investor Jeremy Grantham is sounding the alarm on Wall Street. The GMO co-founder told CNBC the U.S. stock market is now the most expensive in American history.
He points to the Buffett Indicator, a measure of market value to GDP, which is at 235%. That is well above the 150% level seen as alarming during the dot-com bubble.
Grantham argues the surge is driven by artificial intelligence. He notes tech giants like Amazon, Alphabet, Meta, and Microsoft are pouring nearly $300 billion into AI capital expenditures.
He warns that stocks like Palantir and Tesla show speculative excess. If markets revert to historical norms, some AI stocks could fall as much as 70%.
Grantham has a track record of calling major market tops, including the 1980s Japanese bubble, the dot-com crash, and the 2008 housing crisis. The current CAPE ratio stands at 40x, a level that preceded previous crashes.
The bear market ended in late 2022 with the launch of ChatGPT, which sparked an AI investment frenzy. But with valuations at these levels, the margin of safety for new investors is historically thin.