A Catalyst for the AI Bubble Break (Ben Inker and John Pease)

AI bubble catalyst: GMO says the trigger will be supply, most likely supply of *shares* rather than of AI capacity, echoing 2000 when a flood of internet-related issuance broke the "natural Ponzi-scheme dynamic" before fundamentals disappointed. Equity supply shift: They see a reversal from equity supply shrinking roughly 1% a year (buybacks exceeding issuance) to growing close to 5% or more: SpaceX lockup expiry alone exceeds 1% of US market value, plus likely Anthropic and OpenAI IPOs, plus net dilution as hyperscalers fund capex. Return forecast: Applying their estimate that a 1% rise in equity supply cuts market value ~4% over 12 months, GMO expects returns roughly 20% below average over the next 12–18 months from supply alone, before accounting for stretched valuations, high profit expectations, and ignored macro/geopolitical risk. Why flows bite: Only about 30 cents of each equity dollar is traded opportunistically; passive and benchmark-constrained managers won't buy or sell on price. Markets are segmented, so flows move prices far more than theory allows. Downside scenario: In 2000, issuance started the decline; then high valuations and falling margins from overinvestment halved the market. GMO says a similar outcome is not off the table. Bottom line: GMO is bearish on US equities on supply grounds, expecting share issuance to turn the market lower before weak AI returns on investment become visible.