Source: Fortune
Summary
Jeremy Grantham, co-founder of GMO, warns that the AI boom will not lead to sustained high profit margins for the Magnificent 7 tech giants. Instead, AI will force them into brutal competition, draining their moats and normalizing profit margins. Grantham argues that the current AI spending boom is unprecedented and may be self-fulfilling, but he sees it as a temporary phenomenon that will ultimately leave aggregate corporate profitability unchanged.
Our Reading
The numbers tell one story.
Grantham’s warning is not a call to abandon ship, but a warning that the AI boom will not sustain high profit margins. The Magnificent 7 are racing to win an existential arms race, with $725 billion in capital expenditures this year. Grantham sees AI as a transformative technology that will reshape how work gets done, but ultimately leave aggregate corporate profitability unchanged. The current situation is “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 may be self-fulfilling right up until it isn’t. Grantham’s emerging market fund has returned 70% over the past 12 months, compared to 25% for the S&P 500. He sees a divergence already playing out in public markets, with room to run. Grantham is watching for blood in the streets, but he’s not sounding the alarm bell yet.
Author: Evan Null
