Jeremy Grantham says the AI boom could end the way the South Sea Bubble did: with a market bust after too much capital chases a story everyone thinks is obvious. For investors in AI-linked stocks, his warning is simple — the crowding can matter more than the technology.
South Sea Bubble and AI
In the latest episode of MoneyWeek Talks, Grantham told Andrew Van Sickle that historians a century from now will write about the current moment in the same way they write about the South Sea Bubble. He has long been known for spotting excess before it cracks, and he is applying that lens to AI now.
“The railroads transformed our lives. They added enormous productivity. And yet they were so obviously going to do that, that everyone built too many railroads, and everyone lost their money. That will happen in AI.”
“People don't realise that the more obvious and important the idea, the more likely you are to attract too much capital and have a market bust.” Grantham’s point is not that AI lacks value; it is that value can pull in so much funding that returns get competed away before the winners can reward shareholders.
SpaceX, Anthropic, and capital
Grantham pointed to the scale of the race with a blunt comparison: “They're all saying the main risk is not spending enough. 'We will spend our vast cashflows', 'my 200 billion is bigger than your 107 billion' – it's like a kind of gorilla fest in that sense and they all pile into the ring to fight to the death.”
He also said, “The SpaceX prospectus is actually unbelievable. Mining asteroids and colonies on Mars and moving through space and a projection of revenue streams, 90% of which seem to relate to AI.” He added that “it's not clear that their version of AI, which is at the moment having its bottom kicked around the block by Anthropic and the rest of the boys is going to be even around. Forget 90% of this colossal income stream of the biggest enterprise in the history of man.”
One winner in the fight
Grantham said the Magnificent Seven once looked like seven monopolies, but the current contest is different because all of the firms are aiming at AI. “There can only be one,” he said, and “This could be the most vicious fight to the end that we have ever seen, starting now.”
“And of course, they're running at huge losses at the moment. What an act of faith, I mean, give me a break. Talk about tulips.” In his view, the more obvious the opportunity, the more capital floods in, and the more likely the end state is not shared prosperity but stocks getting crushed.
For readers with money in AI names, the practical issue is whether the market is pricing a broad winner when Grantham sees a narrow fight. His answer is a warning, not a timetable: if the spending race keeps intensifying, the payoff may concentrate in one survivor while the rest of the field absorbs the damage.
