AI-driven inflation may derail markets in 2026, investors warn

Global equity markets, buoyed by enthusiasm around artificial intelligence, may be underestimating a key risk for 2026: a resurgence of inflation fuelled in part by the massive tech investment boom, investors and analysts say.

U.S. stock indices ended 2025 at record highs, with a handful of large technology companies accounting for roughly half of total market earnings. Optimism around AI and expectations of easier monetary policy also lifted European and Asian equities to all-time peaks, while bonds rallied on hopes of further rate cuts.

However, money managers caution that inflation pressures could rebuild in 2026 as government stimulus in the U.S., Europe and Japan combines with heavy corporate spending on AI infrastructure. That could force central banks to halt rate cuts or even resume hikes, undermining richly valued tech stocks.

“You need a pin to prick the bubble, and it will probably come through tighter money,” said Trevor Greetham, head of multi-asset at Royal London Asset Management. While still holding big tech, he said he would not be surprised if inflation surged globally by the end of 2026.

Analysts point to the multi-trillion-dollar race by hyperscalers such as Microsoft, Meta and Alphabet to build data centres as a key inflationary driver. These projects are pushing up demand for energy and advanced chips, raising costs across supply chains.

“The costs are going up, not down, because there’s inflation in chip costs and inflation in power costs,” said Morgan Stanley strategist Andrew Sheets, who expects U.S. inflation to remain above the Federal Reserve’s 2% target until at least 2027, partly due to AI investment.

Several investors argue that markets are mispricing inflation risk. Fabio Bassi, head of cross-asset strategy at J.P. Morgan, said a stronger labour market, fiscal stimulus and earlier rate cuts would likely keep inflation elevated “regardless of the price of chips.”

Aviva Investors warned in its 2026 outlook that a major market risk would be central banks ending easing cycles or returning to hikes as AI-led investment and government spending stoke price pressures. Mercer’s European head of economics, Julius Bendikas, said inflation risk had “resurfaced,” prompting a more cautious stance on debt markets.

Early signs of strain are already visible. Oracle and Broadcom shares fell recently after both companies flagged rising costs and pressure on margins. HP Inc said higher memory chip prices driven by data-centre demand could weigh on profits later in 2026.

Deutsche Bank estimates that AI data-centre capital expenditure could reach up to $4 trillion by 2030, warning that supply bottlenecks in chips and electricity may cause costs to spiral. Consultants and former tech executives say such cost blowouts could ultimately dampen investor appetite for the AI trade.

“Inflation is what could start to scare investors and cause markets to show cracks,” said Kevin Thozet, portfolio manager at Carmignac, who has increased exposure to inflation-protected securities as a hedge against rising price pressures.

As the AI boom accelerates, investors are increasingly questioning whether markets are fully prepared for its inflationary consequences.