#64: Pay Attention to the Top 10%
AI’s impact on markets and the employment of top earners
In last week’s Relentlessly Curious, we discussed the widely agreed upon AI bubble and then looked at investment opportunities that are less correlated with changes in AI. Today, we’re exploring a potential scenario for how the AI bubble might burst.
Generally speaking, it’s peaches and cream for the wealthy in America today. In fact, Moody’s Analytics reports that the top 10% of earners make up almost 50% of consumer spending in America.
Which is eerie. The health of the US economy can be gauged by many factors, but consumer spending remains one of the most crucial. That means we are relying on a small subset to keep the consumption engine running on high octane.
Here’s another figure: the top 10% wealthiest Americans (slightly different sample size than the top 10% earners, but more or less the same for this set up) own ~90% of US stock (equity) market as per Federal Reserve data. Now, this statistic is as of January 2024, thus slightly outdated, but unlikely to have changed much. High earners tend to have both the financial means and the knowledge to invest.
America’s wealthy have the weight of the US economy on their shoulders. Well really, in their wallets, whether metal cards or hard plastic. But who is America’s wealthy standing on the shoulders of?
The US stock market, but specifically companies who either sell AI or provide picks and shovels for AI development. The so-called Magnificent 10, an expanded list that includes Microsoft, Apple, Google, Amazon, and NVIDIA, makes up around 40% of the S&P 500’s total value. In 2025 so far, the S&P 500 is up ~17%, while Google is up ~48%, NVIDIA is up ~46%, and Microsoft is up ~24% (as of 10/31 per Yahoo Finance). Big-time AI players have seen tremendous stock price growth and multi-trillion-dollar market caps.
So yeah, if you invest in a broad-based index like the S&P 500 or in Big Tech specifically, your portfolio is having a strong year. But remember, the wealthy own ~90% of the value of the stock market. The same people making up nearly half of consumer spending in the US.
Here’s where things get tricky. It’s no secret that the AI companies leading the charge in stock price growth also pay very well. Turns out, the median pay at Meta in 2024 was ~$400K. And to be in the top 10% of earners in 2025, you’ll need to pull in at least $155K per year, according to the Census Bureau’s ASEC survey. That threshold varies slightly by state but sits around $155K nationwide.
It’s fair to say, most Big Tech workers are in the top 10% of earners.
But Big Tech is starting to disrupt itself. Amazon, Meta, and Google have all announced substantial layoffs this year, with Amazon letting go 14K corporate employees last week. Other big names like Target and UPS have announced sizable cuts, mostly in corporate positions. Meanwhile, large-scale employers like Walmart and JPMorgan are looking to limit headcount growth driven by efficiencies gained through AI.
These are some of the largest employers in the US, of which have a reputation for paying well. Plenty of corporate workers at these firms find themselves close, if not well above the top 10% earning threshold.
So, what happens when the top 10% of earners start to see AI take the job of the person next to them in the office? They start to worry about their own job security and begin to cut back on their spending. Or worse, they themselves lose their job. Either scenario, the heavy spenders start to pull back. They may also slow down their stock purchases as they’ll have less money to invest further into the market.
Many economists argue that layoffs in Big Tech don’t represent the broader labor market (170M people), but I’d argue otherwise. The high earners keep the music from slowing down. In the aggregate, the high earners work in Corporate America. Even though corporations may end up becoming more efficient and rely on fewer people, the short-to-medium term outlook implies that many people will be out of a job. And if a portion of the high earners pull back on splurging, that drag would hit overall consumer spending numbers.
Once that slowdown shows up in the data, the markets will start to shake. It’s likely that the data will tell us what we already know deep down: that the US economy really isn’t as healthy as the US stock market may suggest. And it’s worth remembering: the U.S. economy is not the S&P 500.
The point here is that AI’s effect on automation has had a larger impact on automating lower-skilled jobs to date. The higher-skilled, higher-paying jobs that AI is automating at corporations are the very jobs the economy relies on to sustain spending. And when the layoff trend picks up steam is where things start to fall apart.
I read a WSJ article recently that made me chuckle. The title was, “Big Spenders Are Keeping the Party Going in NYC.” The piece pointed out that despite plenty of warning signals in the economy, high-end restaurants and luxury hotels are seeing strong year-over-year growth. They noted that the newly reopened Waldorf Astoria’s hotel bar offers $38 martinis and is packed on weekdays.
You don’t have to be an economist or a financier to see that P/E ratios on most tech companies are well above historical averages or claim that some of the private-market AI companies are raising rounds at far too high valuations. But because stock prices for some of the biggest S&P 500 companies keep rising, people have more money in their pockets.
The high earners are still alive in the game of musical chairs for now. But if AI stops the music abruptly and they are left without a job (or even people they know lose their jobs), their spending will slow down, and the markets will feel the effects. As portfolios fall, perceived wealth declines, and spending tightens further.
I don’t mean to sound pessimistic. I’m actually quite optimistic that AI will bring about a better quality of life in terms of health, work, infrastructure, and communication. We are seeing a seminal shift in technology that will bring some turbulence along the way.