Jeremy Grantham, co-founder of GMO, famous for predicting past market bubbles, warns that an AI bubble has pushed U.S. stock prices to the highest levels in U.S. history and could lead to a correction downward of up to 70%.

This very experienced strategist gave an interview with CNBC, and his main advice is straightforward: he recommends that investors avoid U.S. stocks and look to overseas markets instead.

The AI bubble is at its highest value ever.

Grantham says that the price-to-earnings ratio of the market has averaged 60% higher than it did a century earlier since 2010. He believes the main cause is that, over several years, capital was cheap. He doesn’t deny that AI has the potential to change the world, but he says nearly unanimous faith in this technology has sparked dangerous overinvestment, consistent with rising concerns about an AI bubble across Wall Street.

Under his bubble model, all the earlier extremes of speculation eventually revert back to a normal trend. He believes that the move back to ordinary values suggests the biggest winners could fall by as much as 70%, more than just 50%. As for timing, he admits it could happen anytime from two weeks to two years.

Grantham once predicted the peak of the dot-com bubble in 2000 and warned about the U.S. housing bubble before 2007. This track record is considered credible, even though his 2021 bubble warning came early, before the market continued rising, and then was adjusted down in 2022. He is not the only one now—investor Ray Dalio has also warned of similar liquidity risks.

Why are crypto investors watching closely?

A 70% pullback won’t be limited to the stock market only. Bitcoin (BTC) is now traded like a tech stock. So when major worries hit the market, crypto assets are likely to be hit harder and faster.

This mounting pressure is already evident. U.S.-listed spot Bitcoin ETF funds have seen the largest outflows in 30 days, totaling $6.35 billion by mid-June, according to Galaxy Research.

While Bitcoin is trading near 59,663 USD during the price plunge, Grantham on the other side still doesn’t prioritize crypto. He reiterates that he sees these coins as having no value and ultimately going to zero.

His strategy focuses on investing in foreign stocks, bonds, and gold rather than high-priced American stocks. However, not everyone agrees with these concerns.

The optimists argue that today’s AI leaders are generating real profits, unlike many dot-com-era companies. U.S. Federal Reserve Chair Jerome Powell said that spending on AI is genuine economic activity, not mere speculation.

I won’t name specific companies, but these companies have real revenue… they have business models, profits, and other such things. So it’s completely different from the dot-com era, he said.

In the end, whether Grantham’s warning comes too early or is correct, his past track record has convinced relatively few people to ignore this warning.

For crypto holders, the key factor is Bitcoin’s fate—right now it depends on how long AI speculation will last. The next round of AI earnings will test whether the existing optimism is truly well-founded.