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We Asked Jeremy Grantham Why AI Won't Boost Profits — and What It Will Do Instead
Full podcast interview with Jeremy Grantham on Excess Returns, published May 16, 2026. Runtime: 1 hr 4 min.
May 20, 2026 · 7:27 AM
Grantham: AI spending saved the economy — now it will shred tech profits
Jeremy Grantham (GMO co-founder, called both the 2000 and 2008 crashes) argues that $725 billion in AI capex is the only thing that kept the US out of recession — but the same competitive wave it unleashed will compress tech profit margins back to historical norms: "We have gone from a monopoly world to a brutal competitive world. There will be blood in the streets."
Jeremy Grantham, co-founder of asset-management firm GMO and one of the few investors on record calling both the 2000 dot-com bust and the 2008 financial crisis, appeared on the Excess Returns podcast on May 16, 2026 1, laying out a view that cuts against almost every major AI bull argument.
His thesis, in two moves: AI capital spending is the only thing that kept the US out of recession — and the very same competitive dynamic it has unleashed will ultimately compress tech-sector profit margins back toward normal.
AI kept the lights on
Grantham's starting point is empirical. Amazon, Google, Meta, and Microsoft have collectively planned $725 billion in capital expenditure for 2026 — roughly 2% of US GDP — most of it flowing into AI infrastructure. 2 That level of spending, he argues, is what prevented a downturn that would otherwise have arrived.
"My guess is that in 2023 we would have moved into a recession and the market would have gone down another 25%. And AI headed it off."
He called the current macro situation "terra incognita" — no historical precedent for an economy this dependent on a single technology capex cycle. 2
Where the bull case breaks down
The harder part of Grantham's argument is what he says AI does not do: protect profit margins.
His analogy is the minicomputer era of the 1970s and 1980s. Early adopters extracted two or three years of competitive advantage before the technology became a standard cost of doing business for everyone. AI, he argues, is on the same path — and the transition is already underway.
"We have gone from a monopoly world to a brutal competitive world. And we will stay there for years and there will be blood in the streets." 3
The target here is the valuation logic behind the Magnificent Seven. Current prices, he suggests, are built on the assumption that AI keeps tech margins elevated. Grantham's counter: "It will not move aggregate profit margins or aggregate profits notably higher than they are typically." 3
A bubble on top of a bubble
Grantham has been bearish on US equities for years, and he frames the current moment as particularly dangerous: AI enthusiasm arrived before the prior bubble had finished deflating.
"We have a bubble forming out of a bubble that was only halfway completed, only halfway deflated, and then resuscitated." 2
The S&P 500 fell roughly 25% from January to October 2022 before the ChatGPT launch and the subsequent rally in AI-linked stocks reversed the correction. 2 In Grantham's reading, the structural overvaluation was never resolved — it was papered over.
He has not yet issued what he describes as an "Abandon ship" level alert — his phrase from July 2008, months before the financial crisis reached full force. But he is watching for the conditions that would warrant one.
For investors who own broad US equity exposure, particularly in large-cap tech, the question Grantham is posing is pointed: if AI becomes a cost rather than a moat, what multiple should the sector actually trade at?
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Cover photo: image via Jeremy Grantham: AI Is the Only Thing That Stopped Recession, Stock Crash (Business Insider / Bloomberg / Getty Images)
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