Morgan Stanley has issued a warning about increasing market risks due to the ongoing AI boom and rising inflation, advising investors to consider reducing their positions in early June. This caution comes as Bank of America's chief investment strategist, Michael Hartnett, highlighted in his latest report that capital inflows into equities and tech stocks are pushing markets into precarious territory. Hartnett noted that U.S. Producer Price Index (PPI) rose 6% year-over-year in April, while Consumer Price Index (CPI) increased to 3.8%, both surpassing expectations. Hartnett emphasized that if inflation continues at its current rate, the U.S. CPI could exceed 5% before the mid-term elections in November, with a CPI above 4% historically leading to declines in the S&P 500. The Bank of America Bull-Bear Indicator has also risen to 7.6, close to the sell signal threshold of 8.0. Additionally, the semiconductor index, SOX, is trading significantly above its 200-day moving average, reminiscent of the dot-com bubble era. Last week, global equity funds saw $20.5 billion in inflows, while cryptocurrency funds experienced $1.3 billion in outflows, marking the largest weekly outflow since February 2026.