Jeremy Grantham Said 'SELL EVERYTHING'... Then GMO Bought Millions Of THIS Stock - Should You Too?

Some of America's most respected investors are warning that a massive stock market crash is coming. Listen carefully to these clips and then I will show you something mind-blowing. >> This is, I think, the biggest investment bubble in American history. The stocks that have gone up the most, AI and the more exciting stocks with the biggest moves, historically, would be expected to come down the most from these unprecedented levels. A 70% decline would not be unexpected. If you have to own stocks, own them outside America. Don't own US stocks. >> You mentioned earlier the dot-com bubble. Are we doing dot-com bubble 2.0 right now? >> Oh, this is much bigger. The AI The AI build-out relative to the TMT build-out of '99-'2000 is multiples, even as a percent of the economy. >> Now, let me tell you the other side of the story because the reality might surprise you. Despite Jeremy Grantham's warning about a possible US market bubble, GMO's latest SEC 13F filing shows that its largest reported US-listed holdings include Microsoft, Alphabet, Johnson & Johnson, Apple, Meta, Lam Research, and Amazon. In simple words, GMO is heavily invested in many of the same American tech companies that are supposedly at the center of this giant bubble. It looks like the long-term chief investment strategist, Jeremy Grantham, and portfolio managers at GMO are not talking to each other because the contrast becomes even more remarkable when we consider the opinion of Tom Hancock, GMO's head of focused equity and one of its senior portfolio managers. Hancock recently called Nvidia the biggest opportunity in the market right now. He argues that Nvidia's earnings have grown so quickly that its valuation has become increasingly attractive. In my opinion, the overall market can be expensive while selective companies within that market can still be attractively valued. Speculative AI stocks without profits can be inside a bubble. While established AI companies with strong earnings, cash flow, and competitive advantages can remain solid long-term investments. So, calling the whole market a bubble is not justified. History provides an important lesson here. Since 1980, the S&P 500 has experienced an average decline of approximately 14% during each calendar year. Despite those regular declines, the market still produced a positive annual return in most years. That means market corrections are not unusual events. They are a normal part of long-term investing. Consider the crash of 1987. The Dow Jones Industrial Average fell 22.6% in a single day, the largest one-day percentage decline in its history. Investors believed the financial system was breaking apart. However, the market eventually recovered, and many high-quality companies went on to reach new highs. The dot-com crash provides a more complicated lesson. The Nasdaq fell approximately 78% from its peak and required around 15 years to return to that level. Many speculative internet companies disappeared completely. However, the internet itself was not a failure. Companies such as Amazon survived the crash and eventually became some of the most valuable businesses in the world. The investors who understood the difference between an important technology and an overpriced company were eventually rewarded. The 2008 financial crisis was even more frightening. The S&P 500 fell approximately 57% from its 2007 peak to its March 2009 bottom. Major banks failed, unemployment surged, and many people believed another great depression had begun. But investors who purchased profitable companies during that period participated in one of the strongest bull markets in history. Then came the COVID crash. Between February 19 and March 23, 2020, the S&P 500 fell approximately 34%. Businesses closed, travel stopped, and the global economy entered a sudden crisis. Yet, the index recovered its previous high by August of the same year. Microsoft, Nvidia, and many other technology companies emerged from that crisis stronger than before. The lesson is not that every decline should be purchased blindly. The dot-com crash proved that weak businesses can fall and never recover. The real opportunity appears when the share price of a strong and profitable company declines while its long-term earnings power remains intact. This is why I focus on revenue growth, earnings, cash flow, competitive advantages, and valuation, not frightening headlines alone. Based on those factors, three companies stand out to me, and the number one is Nvidia. During a gold rush, the safest profits often go to the companies selling picks and shovels, not to every miner searching for gold. Nvidia plays that role in the artificial intelligence boom. Thousands of companies are competing to build the best AI models and applications. Nobody knows which of them will ultimately win, but almost every serious competitor needs powerful computing infrastructure, and Nvidia supplies the essential tools. Its GPUs perform the calculations behind AI, while its networking equipment connects thousands of processors into massive computing clusters. Nvidia's CUDA software then helps developers use these systems effectively. This combination creates a complete platform that competitors cannot easily reproduce. Another important advantage is the relative short economic life of AI hardware. Data center operators generally depreciate servers, GPUs, and similar equipment over roughly four to six years. However, the effective competitive life can be even shorter because each new generation delivers better performance, fast processing, and lower cost per AI task. This creates a recurring upgrade cycle. Microsoft, Amazon, Alphabet, and Meta cannot simply purchase GPUs once and use the same equipment forever. They must continue adding new capacity and replace older systems to remain competitive. Microsoft recently reported that approximately 2/3 of its quarterly capital spending went towards short-lived assets, mainly GPUs and CPUs. Although Nvidia will not receive every dollar, this shows how quickly AI infrastructure must be expanded and refreshed. The AI gold rush will produce winners and losers, but Nvidia does not need to predict every successful AI application. It earns money by supplying the picks, shovels, and industrial machinery required by nearly everyone searching for digital gold. Stock number two is Micron. Micron supplies the memory required to make advanced computing possible. A powerful AI processor cannot perform useful work without fast memory. High bandwidth memory feeds massive amounts of data into GPUs while DRAM and NAND store and process information through data centers, computers, vehicles, and mobile devices. Micron's latest reported quarterly revenue reached approximately 41 .5 billion, representing year-over-year growth of 346%. Operating cash flow reached 25.4 billion, free cash flow reached 18.3 billion, and operating margin expanded to approximately 81%. These are extraordinary numbers. More importantly, Micron is attempting to reduce the traditional boom and bust nature of the memory industry. The company has signed 16 strategic customer agreements covering approximately 20% of its DRAM volume and 1/3 of its NAND volume over the agreement periods. These contracts reportedly include 22 billion in customer financial commitments. They provide greater revenue visibility, secure purchasing volume, and create better protection against sudden price declines. Wall Street analysts have recognized this change. JP Morgan raised its price target to 1540, Morgan Stanley increased its target to 1200, Wedbush moved to 1400, and Susquehanna raised its target to 2,000. Yet, Micron trades at only 12 to 13 times forward earnings. Micron will remain cyclical, and today's unusually high margins will not last forever. However, AI is making advanced memory a strategic component rather than a basic commodity. That structural change deserves a higher valuation than the market has traditionally assigned to Micron. Stock number three is Microsoft. Microsoft controls one of the strongest business ecosystems in the world. Its products include Azure, Windows, Microsoft 365, Teams, GitHub, LinkedIn, and an expanding family of Copilot AI tools. This gives Microsoft something competitors lack, direct access to hundreds of millions of consumers and business users. In its latest reporting quarter, revenue reached approximately 82.9 billion, growing 18% year over year. Microsoft is investing around 190 billion annually to expand its computing infrastructure. That spending pressures near-term cash flow, but it also creates the capacity required to serve future AI demand. The company owns the cloud infrastructure, the enterprise relationships, and the software used by the customers every day. It can therefore earn revenue at several levels of the AI economy. At roughly 23 times forward earnings, Microsoft trades below the valuation normally associated with its quality, recurring revenue, and competitive positioning. Nvidia provides the computing power, Micron provides the memory, Microsoft turns that infrastructure into products used by businesses and individuals. These companies go hand-in-hand with humanity's progress. They support scientific research, medical discovery, education transportation automation and the creation of entirely new industries. A market correction can push their prices lower, and no investment is guaranteed. But, if their margins continue growing while valuation decline, fear will create opportunity. This is why Nvidia, Micron, and Microsoft are the three companies I want to own through volatility. Not because their stocks will move upward in a straight line, but because their technologies are becoming increasingly important to the future of the global economy. This is my personal opinion, not a financial advice. Please consider your own research before making any investment decision.