Fed Chair Jerome Powell Just Connected AI to Inflation. Here's Your Investing Playbook.

President Trump's nominee to become the next Federal Reserve chairman, Kevin Warsh, wrote in The Wall Street Journal last year that artificial intelligence (AI) "will be a significant disinflationary force, increasing productivity and bolstering American competitiveness." The man Warsh would like to replace has a different view, at least for now.

Fed Chair Jerome Powell stated last week during a press conference, "In the short term, what's happening is we're building data centers everywhere, and that's actually putting pressure on all kinds of goods and services that go into building these things." He added, "So that's actually probably pushing inflation up."

If Powell is right, investors probably need to pivot to focus on strategies that assume AI will be an inflation factor and that interest rates will remain high for longer than anticipated. What are those strategies? Here's your inflationary AI investing playbook.

Federal Reserve Chair Jerome Powell answers reporters' questions at the FOMC press conference on Sept.17, 2025. Official Federal Reserve Photo.

Focus on stocks with pricing power

When inflation is high, companies basically have two choices. They can absorb the higher costs. Or they can pass the higher costs along to consumers. Both options come with drawbacks.

Absorbing higher costs drives down profit margins and earnings. As earnings go, so go share prices, sooner or later. There are two potential downsides to passing higher costs along to consumers. First, not every company can do it -- especially those with contractual terms that don't allow them to boost prices. Second, raising prices often leads to lower demand, which could weigh on sales and earnings (and ultimately, share prices).

However, companies with pricing power can pass along higher costs without a significant negative impact on their businesses. They're among the most inflation-resistant stocks on the market.

What specific stocks fit the bill? Freeport-McMoRan (NYSE: FCX) could be a good pick. The company produced 3.4 billion pounds of copper last year. Copper is a critical component for wiring in AI data centers. Freeport-McMoRan estimates it could increase copper production by about 60% by 2030. This mining stock is poised to be a big winner over the next few years.

Buy the biggest AI bottlenecks

One smart way to take buying stocks with pricing power to the next level is to focus on the biggest AI bottlenecks. The boom in AI infrastructure expansion over the last couple of years has been impressive. However, AI data center growth would almost certainly have been significantly higher were it not for the limited availability of memory chips and electric power.

Memory chips, especially high-bandwidth memory (HBM), have enjoyed unprecedented demand. And this demand is greatly outstripping supply. For U.S. investors, Micron Technology (NASDAQ: MU) could be an attractive way to profit from this imbalance.

Micron is one of only three major HBM suppliers, along with Samsung Electronics and SK Hynix. It's the only member of the group that's based in the U.S. Micron completely sold its HBM supply for 2026 months ago. Management confirmed during the company's recent quarterly earnings call that it can meet only half to two-thirds of demand for some key customers. Although Micron is a cyclical stock, there's no end in sight to the company's overwhelmingly positive cycle.

Tech giants are also struggling to secure enough electricity to power their AI data centers. AI models are notoriously power-hungry. Following decades of stagnation, there has even been a nuclear energy renaissance driven by this demand for power to run AI systems.

Constellation Energy (NASDAQ: CEG) ranks as one of the biggest beneficiaries of this trend. Following its merger with Calpine earlier this year, Constellation is the world's largest private-sector power producer. It's also the largest nuclear energy company in the U.S.

Hedge your bets

If anyone has a pulse on what factors are contributing to high inflation, it's Jerome Powell. When he says that data centers are driving higher prices, I believe him. Investing in stocks that benefit from this dynamic, such as Freeport-McMoRan, Micron, and Constellation Energy, could be a smart move.

To be sure, AI stocks (including huge players like Nvidia (NASDAQ: NVDA) and Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)) could still be -- and I suspect will be -- big winners. But I wouldn't be surprised if the most profitable AI trade over the next few years is the stock of a company that has never written a single line of AI code.

Keith Speights has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Constellation Energy, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.