Trendlines: The AI Effect - Accelerating Tech Layoffs?

Layoffs – while the topic is generally taboo, like death and taxes, we think it may be a harbinger of Big Tech’s future. What has caused this recent spate of layoffs, and despite record earnings performance and stock prices, why are the layoffs continuing?

The last time we analyzed tech layoffs, we focused on the top 15 strategic tech acquirers. For this month’s FTFL, we widened our scope, analyzing the 40 largest tech companies by market cap on Nasdaq & NYSE, from Microsoft ($3T) to Workday ($70B).

In 2023, layoffs were up 189% over 2022. Six companies made up 71% of the total: Microsoft, Meta, Alphabet, Amazon, Accenture and Infosys. 

What was different about these 6 companies? Well, the bigger they come, the harder they fall. 

These 6 companies all made big bets in 2020 and 2021, growing headcount at 15x the rate of the other 34 over the two years. A big correction became overdue. 

Looking at the entire Top 40, their rightsizing work happened quickly: 90% of 2023’s layoffs were done in Q1. It would seem all Moonshots have been canceled and ceded to Sam Altman’s $7 trillion Galaxy Shot.

This begs the question, if companies materially corrected their overstaffing in 1Q23 – nearly a full year ago – why have layoffs continued? 

To try to answer that, we turned to another tech story grabbing headlines – actually the tech story of the last 15 months: AI. 

Has adoption of AI, with associated redirection of budgets, led to these ongoing layoffs? Anecdotally, we’ve been hearing that’s the case, but we wanted to take an objective, analytical look. So we took our Top 40 list and created our own AI rankings, based on the amount of references to AI during each company’s most recent earnings call. We then compared post-1Q23 layoffs and most recent quarter year-over-year revenue growth to AI rankings:

Wow, what is going on here? Are the AI Top 20 where they are because they heavily tout AI, grow 4x as fast and layoff 3x as fast? This feels unprecedented in business history.

While the tech industry has been touting the promise of AI for well over a decade, the technology really entered widespread public consciousness on March 14, 2023, with OpenAI’s launch of ChatGPT-4. Behind all of the promise, we have been aware of the dark underside of AI’s impact on employment. We have further appreciated that AI’s chief “creators” would likely become its earliest adopters. While employment data is best studied over longer periods of time, it appears that the technology industry’s shift to an AI focused future is underway and headcount reductions are very much intertwined in this future. 

This article appeared in our March 2024 issue of From the Front Lines, Bowen’s roundup of news and trends that educate, inspire and entertain us. Click here to subscribe.