Veteran investor Jeremy Grantham has declared that the current AI boom is "obviously a bubble" and warned it could trigger a major collapse in the stock market when it eventually bursts. Speaking on the "Merryn Talks Money" podcast, Grantham, co-founder of investment firm GMO, compared the AI frenzy to past technological manias like the railroad and internet booms—both of which led to massive bubbles that brought economies to their knees for years and wiped out vast amounts of wealth. Contrary to the idea that bubbles stem from weak or foolish ideas, Grantham argued that the most dangerous bubbles are built around truly transformative innovations. "All the bubbles are associated with serious things, and the more serious, the bigger the bubble," he said. He pointed to the explosive growth of AI following the launch of OpenAI’s ChatGPT in late 2023, which sparked massive capital inflows and fueled a surge in tech valuations—temporarily preventing a deeper economic downturn. Grantham emphasized what he calls the "iron law" of investing: when an asset doubles in price, the expected return from holding it is cut in half. "If you want to have the highest market in history, you will have the lowest returns in history going forward," he stated. "And it will happen this time. And my guess is after a while, sooner or later, the market will become a whole lot cheaper." He believes the conditions for a bubble are unmistakable—AI is a powerful idea that has drawn in nearly every investor, from individual traders to institutional giants. "The probabilities that AI will not bust are slim to none," Grantham said. "It meets every condition of the railroads and the Internet." He predicted that Nvidia, the dominant chipmaker powering AI systems, will likely lead the market down, dragging other tech stocks with it. "And then out of the ashes several of them will once again inherit the world," he added. Grantham also highlighted the role of institutional inertia and herd behavior in prolonging the bubble. Despite knowing valuations are inflated, many investors continue to pour money in out of fear of falling behind. "They all look around nervously at each other, but they keep going," he said. "As long as the music's playing, they're going to be dancing. Doesn't matter that they know the market is silly." Grantham is not alone in his skepticism. High-profile investors like Michael Burry, known for predicting the 2008 financial crisis, have also raised alarms about overvalued AI stocks and the risk of a market correction. Yet despite these warnings, the U.S. stock market has continued its upward trajectory, with the S&P 500 rising nearly 80% over the past five years. Some prominent figures, including "Shark Tank" investor Kevin O'Leary and tech investor Ross Gerber, have pushed back against the bubble narrative. O'Leary argued that AI’s real-world productivity gains can be measured and justified on a dollar-for-dollar basis, while Gerber emphasized the immense growth potential and soaring profitability of AI companies, calling current valuations reasonable given their future prospects.