Too much riding on one AI stock? Diversify now
The quiet exit His RSU strategy Where does the money go? The AI outlook Refusing to sell The estate trap Cash, not conviction Where money
The quiet exit His RSU strategy Where does the money go? The AI outlook Refusing to sell The estate trap Cash, not conviction Where money goes Siddharth Eswaran, 38, a software engineer based in the United States, has spent his career inside America’s biggest technology companies: Amazon and Uber and now at another major US-based tech company.Along the way, each employer paid him large chunks of his compensation in restricted stock units (RSUs), most of which he held on to. In 2021, he sold his Amazon shares only to fund a down payment on a house in Seattle, Washington state, and dipped into his Uber stock in 2023 after a layoff.Since then, rather than selling his RSUs, Eswaran has borrowed against his portfolio through a securitiesbacked line of credit, allowing the shares to compound. In recent times, however, his approach has changed.“In my current job (company name withheld on request), I am selling shares as soon as they vest and then reinvest them in an S&P 500 index fund,” says the 38-year-old. The trigger was months of weak sentiment and uncertainty about layoffs.His older Amazon and Uber holdings stay put—partly because selling would trigger a large tax bill and partly because his adviser says the two stocks fall under different sectoral classifications, leaving him decently diversified.Eswaran says had his entire net worth been in one stock, he would have considered diversifying a few years ago. His dilemma is playing out across thousands of households, both in India and the US. The artificial intelligence (AI)-led rally in Meta, Alphabet, Microsoft, Nvidia and other tech company stocks has created enormous wealth for employees paid in stock. It has also left many with 50-80% of their net worth riding on a single company’s shares. This larger concern is not whether AI stocks will crash; it is about portfolio construction.Millions of Indian professionals, both at home and in the US, are employed by American companies—especially those labelled ‘Big Tech’ such as Google parent Alphabet, Amazon, and Microsoft—and receive RSUs or employee stock option (ESOPs) as a significant portion of their total compensation.RSUs are shares that a company promises to give you for free, subject only to a vesting period, i.e. the time you must wait for these units to turn into stocks. You pay nothing to receive them. Once vested, they convert into actual shares in your brokerage account, and you can hold or sell them. For example, if you are granted 100 RSUs and 25 vest each year over four years, you receive 25 actual shares annually.ESOPs work differently: they give you the right, but not the obligation, to buy shares at a pre-fixed price called ‘strike price’. If the stock’s market price rises above that strike price, you profit. If it does not, the options become worthless. ESOPs require you to pay to convert options into shares. RSUs do not.The deeper problem is structural. Your salary and your portfolio depend on the same company. That’s double the risk. When layoffs occur, salaries disappear, RSUs vest, bonuses stop, and ESOP values decline. Everything happens together.The selling has already begun, quietly. Vested Finance, an investment platform, has seen a 100% increase in fund flows from ESOP and RSU accounts since April, as employees increasingly look to diversify away from concentrated wealth in a single company, especially in the AI space.The transfers are led by individuals working at companies such as AMD, Intel, Microsoft, Google, Adobe and Qualcomm.“Once it becomes more than 50-60% of your net worth, you should start diversifying,” says Vested Finance CEO Viram Shah.
The BriefWire