‘Blood in the streets’: Legendary investor Jeremy Grantham pulls back the curtain on the AI wars to reveal a ‘brutal, competitive world’ | Fortune

“We now have gone from a monopoly world to a brutal competitive world,” Grantham mentioned in a latest look on the Extra Returns podcast. “And we are going to keep there for years and there will likely 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 Avenue’s AI-fueled rally—constructed their dominance over the previous 20 years in an uncommon period of antitrust permissiveness. Regulators stood down, competitors was crushed or acquired, and revenue margins swelled to ranges with few historic precedents. That window, he says, is closing quick.

The wrongdoer is AI itself.

What’s straightforward to overlook, Grantham beforehand instructed Fortune, is that the AI increase didn’t arrive into a wholesome market. The S&P 500 had already fallen roughly 25% from January by means of October 2022—a correction quietly underway—when ChatGPT launched and the Magnificent 7 “lifted the market on its broad shoulders and staggered ahead,” as Grantham instructed Fortune in April. In his view, the AI frenzy didn’t repair the underlying downside. It deferred it whereas making it bigger: a contemporary speculative frenzy injected on prime of an already overvalued system.

Now, every of the largest expertise corporations is racing to win what quantities to an existential arms race. Amazon, Google, Meta, and Microsoft have collectively earmarked $725 billion in capital expenditures this 12 months, in accordance to evaluation of firm statements first calculated by the Monetary Occasions. That is roughly 2% of U.S. GDP, a lot of it directed at AI infrastructure. Reasonably than compounding the benefits of incumbents, Grantham argued on Extra Returns, AI is forcing them into brutal, pricey competitors with each other. The moats are being drained to fill the struggle chests.

“It won’t transfer mixture revenue margins or mixture earnings notably larger than they’re usually,” he predicted.

His reasoning attracts on a lesson from an earlier technological revolution. When asset managers in the Nineteen Seventies and ’80s rushed to purchase room-sized minicomputers, the first movers loved a real edge—for maybe two or three years. Then adoption grew to become common, the expertise grew to become a value of doing enterprise, and revenue margins normalized. Grantham, talking on Extra Returns, mentioned he sees AI on the identical arc: a transformative expertise that can reshape how work will get executed whereas finally leaving mixture company profitability proper the place it began.

Bulls would counter that that is precisely the level: two or three years of outperformance earlier than normalization remains to be monumental worth for early shareholders and the commerce is about getting out earlier than the normalization hits. Grantham’s personal agency, in its February 2026 paper Sink or Swim, examined whether or not capex booms “foretell clever investments or warn of over-optimism,” and notably stopped in need of a clear reply.

The argument cuts in opposition to one in all the most generally held assumptions at present embedded in fairness valuations: markets are pricing the Magazine 7 at elevated multiples as a result of they assume AI will likely be deployed to maintain or increase these traditionally excessive revenue margins.

And but Grantham himself acknowledged on Extra Returns, as he did with Fortune, that the AI spending increase has been doing actual financial work. With out it, he mentioned on the podcast, the U.S. “would have gone into a minor recession” in 2023, with a downward correction of round 25%. He known as the present state of affairs “terra incognita”—unprecedented reliance on AI spending as a share of GDP, with no historic roadmap for the way it resolves. The guess Wall Avenue is making, in different phrases, could also be self-fulfilling proper up till it isn’t.

However Grantham flagged a divergence already enjoying out in public markets. GMO’s rising market fund has returned roughly 70% over the previous 12 months in contrast to roughly 25% for the S&P 500—a hole he frames as textbook imply reversion from a interval in early 2025 when worldwide equities sat close to all-time cheapness relative to U.S. shares. He mentioned that commerce nonetheless has room to run.

For now, Grantham stopped in need of sounding the alarm bell. His quarterly letter of July 15, 2008, opened with a single instruction: “Abandon ship.” He invoked the outdated French expression “sauve qui peut,” or anybody who can save themselves, save themselves, and closed with a nursery rhyme: Don’t be courageous, run away, dwell to battle one other day. Rising markets fell 50% in the 4 months that adopted.

He’s not there but. However he’s expecting blood in the streets.

For this story, Fortune journalists used generative AI as a analysis device. An editor verified the accuracy of the info earlier than publishing.