Are the tech giants destroying their own golden age by fire-hosing money into AI?

Jeremy Grantham knows a bubble when he sees one. And for good reason. 

The 87-year-old investor — a founder in the innovative Boston money management firm GMO — is legendary in part because of his public track record of side-stepping the tech boom and bust of the late 1990s. 

Between 1998 and 2000, Grantham was one of the few highly public skeptics from the world of finance urging investors to avoid internet-related shares, a contrarian stance that cost his firm tens of billions of dollars in assets, as clients took their money to money managers more willing to buy the latest dot-com darling.

When the market ultimately collapsed in early 2000, GMO regained all it had lost and more, turning Grantham into something of a stock market celebrity. 

“The forming and breaking of the great bubbles are the only thing that really counts in an investment career,” Grantham told Sherwood News in a recent interview. We spoke in conjunction with the release of his new memoir, titled “The Making of a Permabear,” which recounts his tech bubble tale, among others stories from his six decades of investing. “You can tickle the edges, develop some little arcane skill, and make some good money. But what really matters is that every now and then the market is crazy, goes much too high, and then crashes and burns.”

Grantham wasn’t always right. The book, coauthored with finance writer Edward Chancellor, offers an instructive episode of how a young Grantham lost virtually all his money trading in the Nifty Fifty stock market boom of the mid-1960s.

On the other hand, he did dodge the Japanese stock market bubble of the 1980s and publicly waved clients off the inflating housing bubble that led to the financial crisis in 2008.

So I was curious to hear what his take on today is. Grantham contends that the AI boom will go down as one of history’s great technology-driven asset bubbles — alongside the railroad-building boom of the late 19th century or the internet mania at the end of the 20th. 

“They’re the three great new ideas. And they have in common that they were pretty damn obvious. You didn’t have to be a Nobel Prize winner to see that the railroads were going to have a powerful effect,” Grantham said. “So, what happens when you get a really obvious, really important new idea is that everyone and his dog invests in it. Why would they not?”

The question of whether we are in the midst of an AI bubble has been on investors’ minds for months. But Grantham’s lifetime of market experience imbues him with a particular perspective, and a heaping amount of skepticism for the conventional Wall Street pushback to the idea of a bubble. 

That argument rests on the unprecedented profitability of US corporations, which — bulls say — provides a far more secure foundation for the market than previous episodes of exuberance. 

“Yeah, I know the argument,” Grantham said, adding, “They said the same in the Nifty Fifty. They said the same in 1929, for that matter. The point is, the earnings are not sacred.”

In other words, the profitability of companies can change. And that goes, even, for the massive tech companies that are at the heart of the US stock market. 

Grantham argues that previously impregnable tech corporations — including Amazon, Meta, Amazon, Microsoft, and Alphabet — are about to see their profits squeezed as never before, first by costs related to their simultaneous rush to spend hundreds of billions of dollars on data centers, and later by the fact that the AI businesses they are building with those data centers will ultimately pit these market monsters against one another as never before. That sort of head-to-head competition — while good for consumers — is all but certain to damage profits, he says. 

“These guys are overinvesting. They have no real prayer of making a handsome return on their investments. And they are moving into competition with each other,” Grantham said. “It’s like they’re digging trenches and getting the machine guns well oiled, aiming at each other. This is the kind of quiet before the storm, the phony war. But they’re lining up, ready for battle.” 

He added, “This is not how they got rich and happy.” 

There is some evidence that investors have also been getting slightly more skeptical about the profit outlook for these companies.

After rallying more or less steadily in the nearly three years since the launch of ChatGPT in November 2022 — barring the April 2025 tariff tantrum — these stocks have largely been treading water since last fall. Their price-to-earnings ratios have slipped, as investors have cut their forecasts for free cash flow to account for the impact of the companies’ outsized spending on AI capex. But I’ve seen few other analysts discuss the potential for increased competition between these tech giants as another source of pressure on margins.

There have been some, though. The very same day as my interview with the flinty-eyed Yorkshireman, a fresh note from BCA Research’s Peter Berezin fluttered into my inbox. 

Titled “AI Will Kill The Tech Monopolies,” certain aspects of it seemed very much in keeping with Grantham’s view, which, as Berezin told me, it was. 

“Jeremy Grantham is completely right,” Berezin said. “AI hardware is going to be like the EV industry, an incredibly innovative industry. But how many EV companies actually make money? None.”

Financial history, Berezin pointed out, is full of episodes where important, productivity-boosting inventions didn’t actually turn out to be profitable for the mass of companies and investors sinking capital into them. 

Take the internet boom. American businesses made giant investments in fiber-optic cables, switches, and computer equipment, which, as advertised, yielded a surge of productivity growth for the US economy. 

But tech company profits essentially went nowhere for years, Berezin said. And while stock prices soared, the ongoing lack of profitability eventually eroded investor confidence, contributing to the market crash.

The railroads were a similar story, Grantham says. The obvious value of the technology led to a surge of overinvestment, which then destroyed profitability. 

“They overbuilt railroad tracks which weren’t needed. And it just wasn’t the third line between Leeds and Manchester that lost money. They guaranteed that the first and the second lines, which might have been very sensible, also lost all their money,” he said. “No survivors, really, in a sense.” 

The same dynamic is now at work among the giant tech companies, Grantham says. 

“You would say it was inevitable, actually, looking at history. They’ve had such a golden era,” Grantham said. “They competed a bit, in a fairly gentile way, for the cloud. But they were remarkably cool about it. 

“They’re not cool about this one,” he continued.  “It’s a battle to the death.”