Jeremy Grantham, the legendary investor and GMO co-founder who has spent five decades calling market bubbles, has a stark warning for investors betting on artificial intelligence: the competitive intensity will be “vicious,” and there will be “blood in the streets.”
Speaking on the Excess Returns podcast in May 2026, Grantham argued that the era of big tech enjoying monopoly-like profits is effectively over, replaced by what he calls a “brutal, competitive world” driven by AI itself. The shift marks a fundamental reversal from the past two decades, when the Magnificent 7 tech giants built dominant positions in largely uncontested markets.
The culprit is the AI arms race itself. Amazon, Google, Meta, and Microsoft have collectively committed $725 billion in capital expenditures for 2026, according to analysis of company statements first calculated by the Financial Times. This spending is roughly 2% of U.S. GDP, directed primarily at AI data center infrastructure. Rather than cementing the advantages of incumbents, Grantham argues, this spending is forcing them into costly direct competition with one another—draining the moats that once protected their profits.
“The moats are being drained to fill the war chests,” Grantham said on the podcast. “It will not move aggregate profit margins or aggregate profits notably higher than they are typically.”
His reasoning draws on a historical precedent. When asset managers in the 1970s and 1980s rushed to adopt room-sized minicomputers, the first movers enjoyed a genuine competitive edge—for perhaps two or three years. Then adoption became universal, the technology became a cost of doing business, and profit margins normalized. Grantham sees AI on the same trajectory: a transformative technology that will reshape how work gets done while ultimately leaving aggregate corporate profitability where it started.
Grantham’s concern is not that AI lacks value. Rather, it is that investors may be underestimating how competition could affect future profitability. He points out that history’s greatest bubbles were often associated with genuine technological breakthroughs—railroads transformed transportation, the internet transformed communication and commerce—yet investors frequently became overly enthusiastic about the opportunities these innovations created. The strongest technologies often produce the greatest speculative excesses.
The argument cuts against one of the most widely held assumptions embedded in current equity valuations: that the Magnificent 7 are priced at elevated multiples because AI will sustain or expand their historically high profit margins. If Grantham’s view prevails, that assumption may require a significant reassessment.
Grantham acknowledged on the podcast that the AI spending boom has been doing real economic work. Without it, he said, 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.
Sources
- Fortune — Grantham’s May 2026 appearance on Excess Returns podcast, his argument about monopoly-to-competitive-world shift, the $725 billion capex figure from Financial Times analysis, and historical minicomputer precedent
- The Acquirer’s Multiple — Grantham’s concern about competition affecting future profitability and the distinction between transformative technology and valuation
- Bloomberg — Confirmation of $725 billion combined capex for 2026 from Amazon, Microsoft, Alphabet, and Meta
