Artificial intelligence is reshaping industries and the labour market, and this is leading to what is now called a K-shaped economy. On one side, companies directly involved with AI, such as hyperscalers, CPU manufacturers, and those building and powering data centres, are thriving. Meanwhile, young workers and white-collar jobs face increasing threats. This shift is also affecting sectors such as hospitality and retail.
This article looks at who is winning and who is losing in the K-shaped economy, and whether this divide is temporary or something that could become permanent as AI continues to advance.
What is a K-Shaped Economy?
A K-shaped economy describes a pattern where different groups and industries recover and grow at very different rates. The split resembles the letter K. The upper arm of the K represents industries and higher income households that are doing well. The lower arm represents groups that are struggling or falling behind.
For example, high-income earners may see their wealth grow through investments and spending on premium products. At the same time, lower-income individuals may face stagnant wages or job losses. Certain industries, such as technology, may boom while others slow down or decline.
Winners: Big Tech and AI Infrastructure
The top arm of the K curve is led by large technology companies that sit at the front of the AI wave. Within this group, there are two main categories: the spenders and the sellers.
The spenders are the hyperscalers. These are major tech companies with cloud businesses that have committed hundreds of billions of dollars to building AI infrastructure. They believe these investments will drive future revenue growth. Recent earnings reports show strong momentum and no signs of slowing AI investment. For example:
- Google crossed 100 billion US dollars in quarterly revenue for the first time, helped by a 35 percent increase in its cloud division.
- Amazon’s web services division reported its strongest growth in three years.
- Microsoft’s Azure cloud business grew 40 percent, the fastest among its competitors.
- Meta has also committed more than 70 billion US dollars to AI capital expenditure.
These companies can spend at this scale because their existing businesses are highly profitable. Profit margins for the largest tech firms such as Apple, Microsoft, Amazon, Meta, Nvidia, Google and Tesla continue to expand, while margins for the rest of the S&P 493 are decreasing. This makes it very difficult for smaller companies to compete or invest at similar levels.
Collectively, big tech is spending about 60 percent of its operating cash flow on AI infrastructure. This positions them to capture most of the gains if AI demand continues to grow.
OpenAI is another major winner. It triggered the current AI cycle with the launch of ChatGPT in 2022. ChatGPT now has more than 800 million weekly active users. While OpenAI’s business is still small compared with the largest tech companies, it is projected to reach 100 billion US dollars in revenue by 2028. The company plans to spend more than one trillion dollars on AI infrastructure.
Investor confidence in AI spending remains positive for now, although there are signs of caution. Meta’s share price recently experienced its biggest drop in three years, not because of missed earnings but because of plans for increased AI investment without clear short-term returns.
The biggest winners, however, are the sellers. These are companies that make the chips and supply the power that AI data centres require. Nvidia, which recently reached a market value of 5 trillion US dollars, has become the backbone of the AI economy. Companies such as AMD, TSMC, ASML, Micron and several power companies have also seen strong share price gains driven by AI demand.
According to JP Morgan, AI-related stocks have accounted for 75 percent of S&P 500 returns and 80 percent of earnings growth since ChatGPT was launched.
Losers: Labour Market and Consumer Economy
The lower arm of the K economy is falling behind. The labour market is facing real concerns about AI-driven job losses. Entry-level hiring in tech is down 25 percent year on year and more than 50 percent lower than in 2019. Wage growth for young workers has flattened. Unemployment for those under 25 has risen to 10 percent, which is more than double the national average.
While headlines about layoffs are common, Harvard economist Jason Furman notes that overall job data does not yet show a full labour market collapse. Unemployment remains relatively low, but uncertainty persists, especially with studies predicting large-scale disruption. The World Economic Forum estimates that 60 percent of jobs in advanced economies will be affected by AI, and that 39 percent of current worker skills will be outdated by 2030. Goldman Sachs estimates AI could impact up to 300 million full-time jobs globally.
This divide is also visible in consumer spending. Wealthier Americans, supported by rising share markets and home values, are spending more than ever. They now make up nearly half of all consumer spending. In contrast, lower and middle-income consumers face rising costs and are reducing their spending. Companies such as Coca-Cola, McDonald’s and Chipotle have reported growth in higher-income customer segments, while lower-income customer numbers have declined.
The trend is similar across multiple industries. Luxury brands and premium products are outperforming more affordable options in areas such as cars, airlines and hospitality.
Looking Ahead
The key question is whether this divide is temporary or a lasting feature of an AI-driven economy. Will AI companies and their investors be the main beneficiaries while others are left behind?
While the period of adjustment is challenging, there is hope that AI will eventually create new jobs and economic opportunities, just as the internet did in earlier decades. Over time, the gap between winners and losers may narrow as the broader economy adapts.
