Key Takeaways:
- The risk of inflation is being underappreciated by markets in 2026, driven partly by the tech investment boom and data centre construction.
- Investors warn that rate hikes to cool inflation will hit AI shares and reduce investors’ appetite for speculative tech.
- The multi-trillion-dollar race to build new data centres is an inflationary force, gobbling up energy and advanced chips.
- Analysts expect artificial intelligence and data centres to drive electricity consumption sharply up, leading to supply bottlenecks and cost blowouts.
- Central banks may end their rate-cutting cycles or even start to hike, as price pressures build up from AI investment and government stimulus spending.
Introduction to Inflation Risk
The global stock markets are currently riding high on AI euphoria, with U.S. stock indexes making double-digit gains in 2025 to hit record highs. However, investors may be disregarding one of the biggest threats that could spoil the party: a surge in inflation driven partly by the tech investment boom. As Trevor Greetham, head of multi-asset at Royal London Asset Management, notes, "You need a pin that pricks the bubble and it will probably come through tighter money." This suggests that the current market trends may be unsustainable and that inflation could be the catalyst for a correction.
The Impact of Data Centre Construction
The construction of new data centres is a major driver of inflation, with the multi-trillion-dollar race to build these facilities gobbling up energy and advanced chips. According to Morgan Stanley strategist Andrew Sheets, "The costs are going up not down in our forecast, because there’s inflation in chip costs and inflation in power costs." This is likely to lead to supply bottlenecks and cost blowouts, which could have a significant impact on the tech industry. As George Chen, partner at consultancy Asia Group, notes, "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."
Inflation Expectations
The main market gauge of inflation expectations has been out of line with actual realised inflation rate for some years. However, analysts expect U.S. consumer price inflation to stay above the Federal Reserve’s 2% target until the end of 2027, driven by heavy corporate investment in AI. As J.P. Morgan head of cross-asset strategy Fabio Bassi notes, "An improving U.S. labour market, stimulus spending and rate cuts that have already happened would keep inflation above that target ‘regardless of the price of chips.’" This suggests that inflation is likely to remain a significant concern for investors in the coming years.
Market Risks
The risk of inflation is not just a concern for the tech industry, but also for the broader market. As Aviva Investors notes in its 2026 outlook, a key market risk will come from central banks ending their rate-cutting cycles or even starting to hike, as price pressures build up from AI investment and government stimulus spending. This could lead to a correction in the stock market, particularly for AI-related stocks. As asset manager Carmignac investment committee member and portfolio manager Kevin Thozet notes, "Inflation is what could start to scare investors and cause markets to show some cracks."
Investor Concerns
Investors are already showing signs of nervousness about rising costs and potential AI over-spending. Oracle’s shares plunged last month as it revealed spending had soared, while U.S. tech stablemate Broadcom’s stock also dropped after it warned its high profit margins would get squeezed. Personal computer maker 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. As Julius Bendikas, European head of economics and dynamic asset allocation at Mercer, notes, "What keeps us awake at night is that inflation risk has resurfaced." This suggests that investors are becoming increasingly concerned about the impact of inflation on their investments.
Conclusion
In conclusion, the risk of inflation is being underappreciated by markets in 2026, driven partly by the tech investment boom and data centre construction. Investors warn that rate hikes to cool inflation will hit AI shares and reduce investors’ appetite for speculative tech. As the market continues to evolve, it is essential for investors to be aware of the potential risks and take steps to mitigate them. As Trevor Greetham notes, "You need a pin that pricks the bubble and it will probably come through tighter money." This suggests that investors should be prepared for a potential correction in the market and take a more cautious approach to investing in AI-related stocks.
https://www.reuters.com/world/asia-pacific/ai-driven-inflation-is-2026s-most-overlooked-risk-investors-say-2026-01-05/
