Too much riding on one AI stock? Techies see RSU concentration risk.
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.
How RSUs work
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.
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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. “Ideally, 20-30% in one stock, especially where you’re getting your income from, is the maximum (you should hold). Most people, until they are educated on this, are actually sitting on maybe 70- 80% of their net worth in that stock, which is just too much risk.”
At global investing platform Paasa, the destination of that money is striking. Co-founder and CEO Nitish Sahni says that for an employee moving their RSUs, 90% of the assets under management tend to go to UCITS ETFs— exchange-traded funds domiciled in Europe. The most popular funds on the platform include semiconductor, S&P 500 and emerging markets UCITS ETFs. International investors, including those outside the US, prefer UCITS ETFs primarily because they bypass harsh American tax laws, such as the 40% US estate tax and high dividend withholding rates.
How one US-based techie manages his RSUs SIDDHARTH ESWARAN Age: 38 Profession: Software engineer Location: Seattle, Washington state Current employer: Major US technology company
His RSU strategy
Amazon RSUs: Mostly continues to hold Uber RSUs: Sold some in 2023 Current employer RSUs: Sells as soon as shares vests
Where does the money go?
Reinvests proceeds from current employer RSUs into a US S&P 500 index fund
Behaviour differs from company to company, according to Sahni. Employees holding stocks that have lagged, such as Adobe or Salesforce, “will want to diversify into better opportunities regardless of how the market is doing”.
Those at Alphabet or Microsoft split into two camps: one sets a threshold below which they will sell; the other treats every dip as temporary because, as Sahni puts it, “AI is going nowhere”.
The AI outlook
Experts are still optimistic on the AI segment. “It seems like earnings have actually kept up in the US markets,” says Shah. “If you just broadly look at the S&P 500, there is still an opportunity for it to continue to give normal equity returns in the 8-10% range.” Inflows from Indian investors into US stocks have not slowed either, he adds.
However, Shobhit Mathur, co-founder of Ionic Wealth, argues that the valuation debate misses the point. “In tech, when disruptions happen, they take away a large part of your value proposition in a very short span of time. That unpredictability is the bigger problem area,” he says.
His suggestion for believers in the AI wave is to own the ecosystem, not the employer. “Rather than picking individual companies, people are building a diversified basket.”
Refusing to sell
The real hazard, advisers say, is not an AI correction. It is the employee who never sells. The reasons are rarely financial: loyalty, greed, anchoring to an old high, waiting for the “right price”, and the fear of missing the next Nvidia.
“Frankly, this is not a rational decision for many,” according to Sahni. “For them, it holds sentimental value: having spent a number of years at the company, and acknowledging its role in their and their family’s lives.” Mathur calls it familiarity bias. “Many continue to hold, and when a downfall of such magnitude happens, you are holding your largest position at the worst time.”
He also punctures the illusion of inside knowledge: “If you’re just one employee who has got these RSUs, your understanding of where the company is going is as much as somebody outside the company.”
Sandeep Jethwani, co-founder of wealth management startup Dezerv, has observed the same psychology up close. “When your salary, your identity and your largest asset all come from one place, selling the stock can feel like a vote of no-confidence in your own employer, even your own career.”
However, he warns that this argument is misplaced because “the company already has your time and your talent. It does not need your entire net worth as well.”
The estate trap
For non-resident Indians (NRIs) and returning Indians, taxation adds a layer most discover too late. The sharpest edge is the US estate tax: for NRIs, US-situated assets above $60,000 are subject to an estate tax of up to 40% on death.
“Assume somebody has amassed a million dollars of RSUs over five to seven years,” says Mathur. “If something were to happen, that million dollars requires, as per US estate tax laws, 40% to be paid as estate duty before those assets can even be touched or accessed by the family members. That means $400,000 needs to be set aside for taxes. India has LRS (Liberalised Remittance Scheme) limits capped at $250,000. A lot of times, people have taken years before they could even get access to that money.” His wealth management firm has come across a few such cases in the last couple of months.
The US system compounds the pain because, unlike India, brokerage accounts there have no nominee facility. “In the US, there is no concept of beneficiary or nominee. You need a will or a succession certificate before the broker starts processing the transfer,” notes Sahni, recalling a Microsoft employee whose assets remain stuck in US probate. “Forget concentration risk, how will you get the assets back?”
For employees moving back to India, the transition window matters enormously, says Sidhant Agarwal, co-founder of India for NRI, a cross-border legal and taxation consulting firm. “If a person is not a green card holder and is moving back to India, we generally suggest they sell those RSUs while they are an RNOR (resident, but not ordinarily resident), because India won’t have authority to tax that. The same logic applies to a 401(k), though there’s a nuance—you can also elect under Section 89A to defer Indian tax on it until actual withdrawal, so selling isn’t the only route.”
“But if a withdrawal is coming either way, doing it during RNOR avoids the India-side tax entirely. Once you cross the RNOR phase, you become a permanent resident of India, and then the problem arises: India will subject that income to tax,” Agarwal adds.
His general advice: “Either sell before leaving the US, or in the RNOR phase—and for a 401(k), make sure the Section 89A election is filed in your very first resident year if you plan to hold rather than withdraw.”
For resident Indians holding US employer stock, Agarwal explains, the tax bite is twofold: at vesting, when TDS is deducted at slab rates on the difference between the fair market value of the shares on the vesting date and whatever the employee actually paid for them, and again at sale, when capital gains apply to the appreciation, computed in rupees. Compliance starts immediately. “Right at the moment the shares hit your account, it becomes a reportable event in India” under Schedule FA, says Agarwal.
For very large estates, trusts in the US, India or both can mitigate estate tax. Agarwal, however, warns that “it is an expensive affair to form a trust. We generally do not advise it,” unless the family and wealth structures are complex.
Cash, not conviction
So how much concentration is too much?
Jethwani offers a test rather than a number: “If a single position can be cut in half and materially change your life plans, it is no longer an investment. It is an exposure you have not chosen deliberately.”
Shah puts the ceiling at 20-30%, while Sahni says the pain starts “20% onwards, mathematically speaking”. Mathur notes that even seasoned fund managers rarely cross 10% in a single stock “because there are always unknown unknowns”.
Jethwani goes a step further. RSUs, he argues, should not be thought of as investments in the first place. They are simply salary paid late, and in shares instead of cash. The tax treatment proves the point: an RSU is taxed at its full market value on the day it vests, exactly the way a cash bonus would be.
In other words, on vesting day, your employer has effectively handed you money and immediately used it to buy its own shares on your behalf. That raises the question Jethwani wants every employee to ask: “If you had been handed this amount in cash today, would you have gone out and bought your own employer’s shares with it all? Almost nobody would. Most people who hold vested RSUs are doing it out of inertia and calling it conviction.”
What should you do when RSUs vest? Estate tax alert The hidden risk after building wealth.
Where money goes
The advisers converge on the mechanics. Sell gradually, not in one call.
“Think of it like a staggered selling, as a systematic investment plan in reverse,” says Jethwani. Holding on entirely or exiting entirely are both gambles, he observes, pointing to Nvidia, the chipmaker whose stock multiplied several times over during the AI boom and minted fortunes for those who stayed invested. “If you hold everything and the stock collapses, you have a problem; if you sell everything and it becomes the next Nvidia, you also have a problem. The answer to both regrets is the same: sell steadily over time.”
Shah suggests a simple rule: “Every time you hit a 52-week high, just take something off. Study how Jeff Bezos has done it with his Amazon stock.”
And avoid false diversification. “Selling one large-cap US tech name to buy three others leaves you exposed to the same factor: US mega-cap technology and AI sentiment,” warns Jethwani. “You have one bet expressed four ways, not four bets.”
Where should the proceeds go? Into broad ETFs and diversified, professionally managed portfolios; into UCITS funds for eligible investors, which sidestep US estate tax; into debt, where Sahni notes investors are already going “risk off” toward bond ETFs; and into Indian assets tied to goals. Mathur’s current house view is a 70-30 split between Indian and global markets. The destination matters less than the principle, says Jethwani, adding, “The whole point of selling a concentrated position is to convert a fragile, single-point bet into a diversified portfolio that can survive any one company, sector or country having a bad decade.”
