Veteran investor Jeremy Grantham thinks the artificial intelligence boom has pushed the U.S. stock market to its most expensive level ever and could eventually lead to a historic decline.

“Based on the value of the stock market compared to GDP, with modifications, this is the most expensive market in American history,” Grantham told CNBC’s “Squawk Box.”

While the GMO co-founder said he wasn’t sure there was a comparable period, the tech bubble of 2000 is the closest analogy. He also highlighted the so-called Buffet indicator, which compares the total value of the U.S. stock market valuation with the size of the economy in terms of GDP.

The market capitalization to GDP ratio referenced by Grantham is estimated to be at 235%, according  to Longtermtrends.com. It means that the value of the total stock market is more than two times the size of the U.S. economy. 

Legendary investor Warren Buffett used this indicator, saying years ago that when it “approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.”

Graham said that, while the timing was terribly uncertain, markets could potentially peak.

Grantham is a famed investor known for his history of calling bear markets and has issued similar dire warnings in the past, including in March 2024.

At the time, he predicted the long-term outlook for U.S. stocks was almost as poor as at any other point in history but the stocks continued to advance after that warning.

“The long-run prospects for the broad U.S. stock market here look as poor as almost any other time in history,” Grantham had said in a blog post released by Boston-based GMO at the time.

Grantham also discussed SpaceX following its blockbuster IPO. The stock raced higher in the first few days of trading but has sine lost steam. The investor said that while AI is where investors want to put all their money in, this also creates the conditions for excessive investment.

He pointed out that Amazon shares fell 92% after the dot-com bubble before the company eventually “inherited the earth.”

“The long term is complicated, I don’t know, but is it going to have a crash like Amazon? Yes, very likely. And then what happens is indeed it may float away debris on the waves of time, or it will inherit a lot of the market, like Amazon did,” he said.

SpaceX and its roughly $2 trillion valuation, he believes, is another sign of extreme market enthusiasm. 

He said historians may eventually view the company’s public-market debut as “one of the defining peaks of all time.”

“It’s the thing you see around the top,” Grantham said.