Global stock markets continued their AI-driven rally into early 2026, yet investors may be overlooking a significant threat capable of derailing the festivities: a resurgence of inflation triggered by the technology investment boom. This risk not only has the potential to force central banks to reverse their monetary policies but also directly threatens the core logic underpinning current lofty market valuations. Although the U.S. stock market, led by the "Magnificent Seven" tech giants, hit record highs in 2025 and inflation data showed signs of receding, market watchers warn that a combination of massive government stimulus programs and enormous corporate capital expenditures in AI could cause global price pressures to re-emerge in 2026. Several asset managers point out that the market's prevailing expectation for further interest rate cuts represents an optimism that likely fails to fully account for the risk of an inflation rebound. Should inflation accelerate, central banks worldwide could be forced to halt their easing cycles, or even restart monetary tightening, which would cut off the flow of cheap money into AI-themed markets. For tech stocks reliant on high expectations and low financing costs, a tightening monetary environment would deliver a direct blow, not only increasing funding expenses but also compressing corporate profit margins and depressing share price valuations. Analysts from institutions like Morgan Stanley and Aviva Investors note that the AI frenzy itself is becoming an inflationary force. The voracious demand for energy and advanced chips from data center construction is driving up costs, potentially keeping inflation rates above the U.S. Federal Reserve's 2% target for longer—a risk currently substantially underestimated by market participants. For the 2026 market outlook, some veteran investors believe a shift in monetary policy will be the key variable. Trevor Greetham, Head of Multi-Asset at Royal London Asset Management, stated that market bubbles often require a "pin" to burst, and that pin is likely to come from monetary tightening. He noted that while he still holds large tech stocks, he would not be surprised to see a significant global inflation surge by the end of 2026. Greetham warned that tighter funding conditions would dampen investor appetite for speculative tech assets while simultaneously increasing the financing costs for AI projects, thereby reducing the profits and share prices of tech conglomerates. Kevin Thozet, a member of the Carmignac Investment Committee, expressed similar concerns, believing inflation risks remain severely underestimated as the economic growth cycle accelerates. Thozet pointed out that inflation could begin to spook investors; as the risk of rate hikes increases, the high price-to-earnings ratios investors award major AI stocks will decline. Consequently, he has begun increasing his holdings in inflation-protected bonds. Beyond the macroeconomic impact of monetary policy, the direct cost pressures stemming from AI infrastructure build-out cannot be ignored. Analysts indicate that the trillion-dollar race among "hyperscalers" like Microsoft, Meta, and Alphabet to construct data centers represents a significant inflationary force. These projects are consuming vast amounts of energy and advanced chips, causing their prices to rise instead of fall. Morgan Stanley strategist Andrew Sheets stated that according to their forecasts, related expenditures will increase rather than decrease due to inflation in chip and power costs. He anticipates that, partly due to massive corporate investment in AI, the U.S. Consumer Price Index (CPI) will remain above the Fed's 2% target until the end of 2027. Furthermore, Deutsche Bank analysts estimate that capital expenditure on AI data centers could reach as high as $4 trillion by 2030. The rapid rollout of such projects could lead to supply bottlenecks for chips and power, causing investment costs to spiral upwards. George Chen, a partner at consulting firm Asia Group and former Meta executive, noted that inflation in memory chip costs will drive up prices for AI groups, reduce investor returns, and ultimately lead to less capital flowing into the sector. In fact, the market is already showing early signs of tension regarding rising costs and potential AI over-spending. Oracle's stock fell sharply last month after it disclosed a surge in expenditures, while the share price of U.S. tech giant Broadcom also dropped after it warned of squeezed high profit margins. Personal computer maker HP Inc anticipates that its prices and profits will face pressure in the second half of 2026, impacted by rising memory chip costs driven by surging data center demand. Julius Bendikas, Head of European Economics & Dynamic Asset Allocation at Mercer, said, "What keeps us up at night is that inflation risk has re-emerged." Although he is not yet betting on a stock market correction, he is gradually exiting bond markets that could be hit by an inflation shock. Fabio Bassi, Head of Cross-Asset Strategy at J.P. Morgan, added that beyond chip prices, improvements in the U.S. labor market, stimulative spending, and the interest rate cuts already implemented will all support inflation staying above target. Aviva Investors also emphasized in its 2026 outlook that central banks ending their rate-cutting cycles, or even beginning to hike rates, will be a major risk facing markets.
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