Jeremy Grantham has spent five decades calling market bubbles before anyone else wanted to hear it. Now he has a warning for investors still betting that AI will mint a new generation of tech monopolies: the exact opposite is happening.
“We have gone from a monopoly world to a brutal competitive world,” Grantham said in a recent appearance on the Excess Returns podcast. “And we will stay there for years and there will be blood in the streets.”
The GMO co-founder and market historian argues that the Magnificent 7—the mega-cap tech giants that powered Wall Street’s AI-fueled rally—built their dominance over the past two decades in an unusual era of antitrust permissiveness. Regulators stood down, competition was crushed or acquired, and profit margins swelled to levels with few historical precedents. That window, he says, is closing fast.
The culprit is AI itself.
What’s easy to forget, Grantham previously told Fortune, is that the AI boom didn’t arrive into a healthy market. The S&P 500 had already fallen roughly 25% from January through October 2022—a correction quietly underway—when ChatGPT launched and the Magnificent 7 “lifted the market on its broad shoulders and staggered forward,” as Grantham told Fortune in April. In his view, the AI frenzy didn’t fix the underlying problem. It deferred it while making it larger: a fresh speculative frenzy injected on top of an already overvalued system.
Now, each of the largest technology companies is racing to win what amounts to an existential arms race. Amazon, Google, Meta, and Microsoft have collectively earmarked $725 billion in capital expenditures this year, according to analysis of company statements first calculated by the Financial Times. This is roughly 2% of U.S. GDP, much of it directed at AI infrastructure. Rather than compounding the advantages of incumbents, Grantham argued on Excess Returns, AI is forcing them into brutal, costly competition with one another. The moats are being drained to fill the war chests.
“It will not move aggregate profit margins or aggregate profits notably higher than they are typically,” he predicted.
His reasoning draws on a lesson from an earlier technological revolution. When asset managers in the 1970s and ’80s rushed to buy room-sized minicomputers, the first movers enjoyed a genuine edge—for perhaps two or three years. Then adoption became universal, the technology became a cost of doing business, and profit margins normalized. Grantham, speaking on Excess Returns, said he sees AI on the same arc: a transformative technology that will reshape how work gets done while ultimately leaving aggregate corporate profitability right where it started.
Bulls would counter that this is exactly the point: two or three years of outperformance before normalization is still enormous value for early shareholders and the trade is about getting out before the normalization hits. Grantham’s own firm, in its February 2026 paper Sink or Swim, examined whether capex booms “foretell wise investments or warn of over-optimism,” and notably stopped short of a clean answer.
The argument cuts against one of the most widely held assumptions currently embedded in equity valuations: markets are pricing the Mag 7 at elevated multiples because they assume AI will be deployed to sustain or expand these historically high profit margins.
And yet Grantham himself acknowledged on Excess Returns, as he did with Fortune, that the AI spending boom has been doing real economic work. Without it, he said on the podcast, the U.S. “would have gone into a minor recession” in 2023, with a downward correction of around 25%. He called the current situation “terra incognita”—unprecedented reliance on AI spending as a share of GDP, with no historical roadmap for how it resolves. The bet Wall Street is making, in other words, may be self-fulfilling right up until it isn’t.
But Grantham flagged a divergence already playing out in public markets. GMO’s emerging market fund has returned approximately 70% over the past 12 months compared to roughly 25% for the S&P 500—a gap he frames as textbook mean reversion from a period in early 2025 when international equities sat near all-time cheapness relative to U.S. stocks. He said that trade still has room to run.
For now, Grantham stopped short of sounding the alarm bell. His quarterly letter of July 15, 2008, opened with a single instruction: “Abandon ship.” He invoked the old French expression “sauve qui peut,” or anyone who can save themselves, save themselves, and closed with a nursery rhyme: Don’t be brave, run away, live to fight another day. Emerging markets fell 50% in the four months that followed.
He’s not there yet. But he’s watching for blood in the streets.
For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.
This story was originally featured on Fortune.com
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