"You build the first railroad, you do the first couple of internet stocks, and people think this is going to be brilliant tomorrow and they bring forward in time with great enthusiasm everything," he said. "Everybody is going to have internet in their name."
Similarly, "today, everyone is ordering these darn chips to facilitate AI," Grantham said.
"They don't know what they're going to use the chips for yet," he said. "It's like selling shovels in the gold rush."
AI set off "initially 10 months of amazing rally by a couple of handfuls of stocks, giant recipients, people thought, of the benefits of AI," Grantham said. "The rest of the market, with its jaw hanging loose, watched, most of them drifting down for 10 months as these guys went up 50, 60, 70%."
In NVIDIA's case, it went up "considerably more than that," he said.
"And they were so big, that they carried the entire market with them, and then 10 (or) 11 weeks ago, the rest of the market gave up waiting patiently and joined in," Grantham said.
"The bad news for a bear is I can't easily dismiss artificial intelligence," he said.
So, what Grantham believes will happen is "we'll have that euphoria like we had in railroads and in internet, and then we will have the setback that followed every single case."
"Amazon was brilliant if you remember in '99," Grantham said. "It declined in the ensuing 2½ years an almost unbelievable 92% before regrouping and inheriting half the U.S. retail business, and that is what has happened historically."
AI is "an incredibly important development like the internet was, and probably more so … but it will not happen instantly," he said. It will require a digestion phase, "and we're, I think, way over our skis," Grantham said.
