Global stock markets, buoyed by AI-driven optimism in early 2026, may be overlooking the bigger threat of spiking inflation that has contributed to the tech investment boom, analysts say.
The U.S. stock index, where seven tech groups account for half of market profits in 2025, rose by double digits to hit a record high.
European and Asian stocks followed suit, buoyed by AI excitement and monetary easing.
Expectations of further interest rate cuts also provided a tailwind for bond investors, with U.S. Treasuries' best annual performance in five years, even as inflation remains above the Federal Reserve's 2% target.
Global growth is expected to be sustained in 2026 with continued government stimulus and AI investment in the US, Europe, and Japan.
But analysts warn that this could reignite inflation, prompt central banks to halt or raise interest rates, and slow the flow of easy money into tech markets.
“We need a pin to put the needle in the bubble, and it's probably going to happen because of tight cash,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.
Tighter monetary policy would curb speculative tech investment, raise the cost of funding for AI projects, and lower profits and stock valuations for big tech companies.
The rapid expansion of data centers by hyperscalers such as Microsoft, Meta, and Alphabet is also creating inflationary pressures through rising energy and chip costs.
“Costs are going up, not down,” said Morgan Stanley strategist Andrew Sheets, noting that U.S. consumer price inflation could remain above 2% through the end of 2027, due in part to heavy investment in AI.
Other analysts have similar concerns. JPMorgan's Fabio Bassi said stimulus, interest rate cuts and a strong labor market should keep inflation above target.
Aviva Investors highlighted the risk that central banks will stop cutting rates or stop raising rates as AI-driven and government-led spending progresses.
Mercer's Julius Bendikas added that inflation risks have been underestimated, prompting a cautious exit from vulnerable bond markets.
The market is already sensitive to rising costs.
Oracle shares fell last month after the company disclosed increased spending, while Broadcom warned that its high profit margins could come under pressure.
Rising costs of memory chips are expected to put pressure on prices and profits for PC makers and AI companies in the second half of 2026.
Deutsche Bank predicts that capital investment in AI data centers could reach $4 trillion by 2030, creating chip and power supply bottlenecks and raising investment costs.
Former Meta executive George Chen warned that rising costs and inflation could reduce returns for investors and curb the flow of capital to AI-focused companies.
