# There's a bearish wrinkle in the market's hottest trade > Source: > Published: 2026-08-14 13:06:08+00:00 # There's a bearish wrinkle in the market's hottest trade [Business Insider](https://www.businessinsider.com) "The disinflationary effects of AI that Chair Warsh has been touting will have to wait a little longer," says Bank of America. - AI is often framed as a disinflationary force, but it's buildout has been inflationary. - Higher inflation puts upward pressure on interest rates, which can weigh on stocks. [Sign up for First Trade](https://www.businessinsider.com/subscription/newsletter/first-trade), Business Insider's daily markets newsletter. Economists and central bankers like to extoll the disinflationary benefits of AI. The new technology can help businesses produce more at lower costs. It can replace some human labor, meaning savings on wages. So, higher productivity and lower costs, combined with less wage-driven demand, lead to lower consumer prices. While that may be all well and true in the long run, there's no doubt that AI — specifically, the cost of building out its infrastructure — is actually [creating higher consumer prices](https://www.businessinsider.com/us-inflation-outlook-economy-ai-memory-software-prices-goldman-sachs-2026-7) now. Look no further than [July's CPI report](https://www.businessinsider.com/cpi-inflation-july-consumer-price-index-2026-8), released Wednesday: computer prices rose 3.5% in a single month, while software prices climbed about 40% over the past year. Add in the rising cost of energy as data centers compete for power, and businesses passing along AI installation costs to customers, and AI starts to look inflationary, Bank of America said in a client note on Thursday. "AI is not only raising input costs for electronics, but also driving a positive wealth effect that is supporting consumer demand," Stephen Juneau, an economist at the bank, said in the note. "The disinflationary effects of AI that Chair Warsh has been touting will have to wait a little longer." That's concerning for stocks on two fronts: both short- and long-term interest rates. On the short end of the yield curve, [AI contributing to higher inflation](https://www.businessinsider.com/ai-making-everything-more-expensive-inflation-apple-iphone-data-centers-2026-6) is complicating interest rate policy. The higher inflation is, the more the Federal Reserve feels pressure to hike its overnight lending rate. That acts as a brake on economic activity, and can slow earnings growth — the lifeblood of the stock market. Tom Essaye, the founder of Sevens Report Research, told me Thursday that while the AI buildout is unlikely to lead to a sustained bout of inflation, it does strengthen the case for a one-and-done rate hike at the Fed's September meeting. On the second front, inflation tends to push up long-term bond yields as investors demand higher returns when they expect inflation to erode their money's value. The 10-year Treasury yield is now at 4.64%, up from 4.15% at the start of the year. While there are many factors influencing long-term interest rates, elevated investment spending is helping lift bond yields, MRB Partners said in a client note on Thursday. The firm sees long-term yields rising further, which could mean trouble for stocks. "Our bearish outlook for US Treasurys will eventually be problematic for US equities," Philip Colmar, a partner of global strategy at MRB Partners, said in the note. He added that every time 10-year yields have broken out meaningfully to the upside since 2020, "equities have experienced a sharp correction." [Business Insider](https://www.businessinsider.com/ai-trade-inflationary-capex-buildout-bearish-for-stocks-interest-rates-2026-8) Get AI news in your inbox Daily digest of what matters in AI.