By Naomi Rovnick and Lewis Krauskopf
LONDON/NEW YORK, Jan 5 (Reuters) – Global stock markets, riding high on AI euphoria at the start of 2026 may be disregarding one of the hugegest threats that could spoil the party: a surge in inflation driven partly by the tech investment boom.
U.S. stock indexes, where seven tech groups contributed half of all market earnings this year, built double-digit gains in 2025 to hit record highs as exuberance about AI and monetary easing also propelled European and Asian equities to record peaks.
Expectations for further rate cuts have buoyed bonds too, handing U.S. Treasury investors the best annual performance for five years as inflation retreated, although it remains above the Federal Reserve’s average 2% tarobtain.
For 2026, waves of government stimulus in the U.S., Europe and Japan as well as the AI boom are expected to refuel global growth.
This has money managers bracing for inflation to re-accelerate, prompting central banks to conclude their rate-cutting cycles, slamming the brakes on the straightforward money flow into AI-obsessed markets.
“You necessary a pin that pricks the bubble and it will probably come through tighter money,” stated Trevor Greetham, head of multi-asset at Royal London Asset Management. He stated that while he was holding on to huge tech stocks for now he would not be surprised to see inflation booming worldwide by the conclude of 2026.
Tighter money would reduce investors’ appetite for speculative tech, raise funding costs for AI projects and reduce tech groups’ profits and share prices, Greetham stated.
The multi-trillion-dollar race by so-called hyperscalers like Microsoft, Meta and Alphabet to build new data centres was also an inflationary force, analysts stated, becaapply of the rate at which these projects are gobbling up energy and advanced chips.
“The costs are going up not down in our forecast, becaapply there’s inflation in chip costs and inflation in power costs,” Morgan Stanley strategist Andrew Sheets stated.
He stated U.S. consumer price inflation would stay above the Federal Reserve’s 2% tarobtain until the conclude of 2027 in part becaapply of heavy corporate investment in AI.
J.P. Morgan head of cross-asset strategy Fabio Bassi stated that an improving U.S. labour market, stimulus spconcludeing and rate cuts that have already happened would keep inflation above that tarobtain “regardless of the price of chips.”
Aviva Investors stated in its 2026 outview that a key market risk would come from central banks concludeing their rate-cutting cycles or even starting to hike, as price pressures build up from AI investment and waves of government stimulus spconcludeing in Europe and Japan.
CHIPS AND CHARGES
“What keeps us awake at night is that inflation risk has resurfaced,” stated Julius Bconcludeikas European head of economics and dynamic asset allocation at Mercer, which manages $683 billion of assets directly and advises institutions running a combined $16.2 trillion.
He is not yet betting on a stock market correction, but is edging out of debt markets that might obtain rattled by an inflation shock.
Markets have already displayn early signs of nerves about rising costs and potential AI over-spconcludeing.
Oracle’s shares plunged last month as it revealed spconcludeing had soared, while U.S. tech stablemate Broadcom’s stock also dropped after it warned its high profit margins would obtain squeezed.
Personal computer creater HP Inc expects to feel pressure on prices and profits in the later part of 2026 from the surge in memory chip costs driven by rising data centre demand.
“Inflation is what could start to scare investors and caapply markets to display some cracks,” stated asset manager Carmignac investment committee member and portfolio manager Kevin Thozet.
With the economic growth cycle accelerating “inflation risk remains very underappreciated,” he stated, prompting him to stock up on inflation-protected Treasuries. As rate hike risks increased, he stated, the price-earnings valuations investors applied to large AI stocks would fall.
ANALYSTS SEE AI COST BLOWOUT
Deutsche Bank expects AI data-centre capital expconcludeiture to reach as much as $4 trillion by 2030 and the rapid rollout of these projects could caapply supply bottlenecks in chips and electricity that create investment costs spiral, the bank’s analysts stated.
George Chen, partner at consultancy Asia Group, who also formerly held a senior role at Meta, stated that cost blowouts and consumer price inflation would raise the costs of AI projects and prompt a rebelieve among investors about chasing the AI theme.
“Memory chip cost inflation will push up prices for AI groups, lower investors’ returns and then the flow of money into this sector will reduce,” he stated.
(Writing by Naomi Rovnick. Reporting by Naomi Rovnick in London, Brconcludea Goh in Shanghai and Lewis Krauskopf in New York. Additional reporting by Karin Strohecker and Vidya Ranganathan in LondonEditing by Vidya Ranganathan and Jane Merriman)
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