Global equity markets, buoyed by strong enthusiasm around artificial intelligence at the start of 2026, may be overlooking a major risk that could disrupt the rally: a renewed rise in inflation driven in part by the surge in technology investment.
U.S. stock indexes surged to record highs in 2025, supported by double-digit gains as a handful of major technology groups accounted for roughly half of total market earnings. Optimism around AI and expectations of easier monetary policy also lifted European and Asian equities to historic peaks.
Bond markets benefited as well, with expectations of further interest rate cuts delivering U.S. Treasury investors their strongest annual returns in five years. While inflation eased, it remains above the Federal Reserve’s long-term 2% target.
Inflation risks return as growth accelerates
Looking ahead to 2026, large-scale government stimulus across the United States, Europe, and Japan, combined with continued AI-driven investment, is expected to support global growth. However, this outlook has also raised concerns that inflation pressures could intensify once again.
Many money managers now fear that resurgent inflation could force central banks to end their rate-cutting cycles sooner than expected, potentially choking off the easy liquidity that has fueled AI-focused markets.
Trevor Greetham, head of multi-asset at Royal London Asset Management, warned that tighter monetary conditions could be the catalyst that deflates the current market optimism. While he continues to hold large technology stocks, Greetham said he would not be surprised to see global inflation rising sharply by the end of 2026.
Higher interest rates would likely reduce appetite for speculative technology investments, increase funding costs for AI projects, and squeeze profit margins across the sector, he added.
AI investment adds to cost pressures
Analysts say the massive capital spending race among hyperscalers such as Microsoft, Meta, and Alphabet is itself inflationary. The rapid construction of new data centers is driving up demand for energy and advanced semiconductors, pushing costs higher.
Andrew Sheets, a strategist at Morgan Stanley, said rising chip and power costs are unlikely to ease. He expects U.S. consumer inflation to remain above the Federal Reserve’s target until at least the end of 2027, partly due to sustained corporate spending on AI.
Similarly, Fabio Bassi, head of cross-asset strategy at J.P. Morgan, said a stronger labor market, fiscal stimulus, and already-delivered rate cuts are likely to keep inflation elevated regardless of chip prices.
Central banks may reverse course
In its 2026 outlook, Aviva Investors highlighted the risk that central banks could halt rate cuts or even resume tightening as price pressures build from AI investment and government spending, particularly in Europe and Japan.
Julius Bendikas, European head of economics and dynamic asset allocation at Mercer, said inflation risk has clearly resurfaced. While he is not yet predicting a stock market correction, he has started to reduce exposure to debt markets that could be vulnerable to an inflation shock.
Early warning signs emerge
Markets have already shown signs of sensitivity to rising costs and potential overspending on AI. Shares in Oracle fell sharply after the company disclosed a surge in spending, while Broadcom also saw its stock drop after warning that profit margins could come under pressure.
PC maker HP Inc has warned that higher memory chip costs linked to growing data center demand could weigh on prices and profits later in 2026.
Kevin Thozet, portfolio manager at Carmignac, said inflation could be the trigger that unsettles markets. With economic growth accelerating, he believes inflation risks remain underappreciated and has increased exposure to inflation-protected Treasuries. Rising rate expectations, he added, could also compress valuation multiples for large AI stocks.
Analysts warn of AI cost escalation
Analysts at Deutsche Bank estimate that global spending on AI data centers could reach as much as $4 trillion by 2030. The rapid rollout of these projects risks creating supply bottlenecks in semiconductors and electricity, driving investment costs sharply higher.
George Chen, partner at consultancy Asia Group and a former senior executive at Meta, said cost overruns and rising consumer inflation could eventually force investors to reassess their enthusiasm for AI. As memory chip prices rise, he said, returns for AI-focused companies may fall, slowing capital inflows into the sector.
