AI Is 'Classic Investment Bubble,' GMO Says. What to Buy Instead.NEWS | 28 November 2025This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now.
Jeremy Grantham's GMO has periodically warned of an AI bubble for years now, even while most market onlookers remained bullish. Now, as fears of overexuberance begin to grip the broader market, the famed asset management firm is reiterating its bearish call.
"AI looks like a classic investment bubble to us, with very high valuations and signs of rampant speculation," Ben Inker, the co-head of asset allocation at GMO, said in the firm's quarterly letter on November 21.
"Investors are so desperate to get in early on the next big thing that they've bid up the prices of quantum computing stocks 1200% or more over the past year, and at valuations that make Palantir look like a value stock," he continued. "It certainly looks like a bubble to us, although I don't believe I'll convince any true believers in the AI version of 'this time it really is different' of that fact."
GMO's call is not one on the broader market, however. It's strictly on the AI trade. That means it thinks that there are plenty of opportunities elsewhere in the stock market, and you don't have to move a majority of your portfolio into safer assets, like would have been prudent before the 2008 and 2021 crashes.
Compared to the stock market bubbles of 2000, 2008, and 2021, Inker said the current environment is most similar to the dot-com bubble.
And that "should be a relief to the agnostic investor," he wrote. "While dynamic, valuation-driven asset allocation saved many investors considerable pain in all three bubbles, only in the 2000 event was it possible to spare yourself large losses without having to own a portfolio that would have been crazy to hold in any normal situation."
That portfolio included REITs, international small-caps, government bonds, and emerging market debt and equity.
Today, GMO sees the most attractive opportunities in developed market value stocks and non-US small-cap value stocks, particularly in Japan.
GMO
"For the agnostic investor who is worried that AI might be a bubble but isn't entirely convinced, the good news is that today, certainty is not required to move to a portfolio that is less dependent on the AI trade," Inker wrote, the emphasis his.
"Plenty of other risk assets are trading at fair or even compelling valuations, and even if today's financial markets turn out to be rationally priced, there is no long-run expected return give-up for tilting your portfolio away from the AI darlings and into those other assets," he added.
Examples of funds offering exposure to the above trades include the Avantis International Small Cap Value ETF (AVDV) and the iShares MSCI Intl Value Factor ETF (IVLU).Author: Never Miss A Story. William Edwards. Enter Your Email. Follow Authors. Source
