In today’s technology industry, it’s either use AI or be left behind. Companies know this and are committed to doing so.
For most people, this means deploying AI and using it to increase efficiency. However, increased efficiency is increasingly leading to large-scale layoffs of employees.
The logic behind it is basically “addition and subtraction”. If a company can convince investors that AI is simultaneously increasing productivity and reducing labor costs, that will be a big boon for the company’s stock price. At the end of the day, future revenue growth rules everything.
This is not a new concept. Technological innovation has displaced generations of workers and streamlined business. However, what is notable about the current situation is the increasing scale and frequency of layoffs, particularly in the technology industry.
Another layer is the fact that addition and subtraction have quickly paid off in the stock market in some recent high-profile examples.
- Just yesterday, Meta’s stock price rose more than 3% intraday following reports that the company was considering cutting up to 20% of its workforce.
- Logistics software maker Wisetech’s stock price soared 12% on February 25 after it cut 2,000 jobs, or 30% of its workforce.
- On February 27, Jack Dorsey’s fintech company Block soared 17% after cutting 4,000 jobs, about half its workforce.
Of course, there are examples of companies where layoffs failed to drive stock price growth (HP, Salesforce, Atlassian, etc.). Although this is not a foolproof method, it has been successful enough that companies continue to use it.
But before you celebrate the brutal reality of addition and subtraction, consider the bullet points below that correspond to the bullet points above.
- Meta stock is still down more than 20% from its mid-2025 high.
- WiseTech has fallen 60% over roughly the same period.
- Block is trading 26% below its 2025 high and returning about 6% of its profits after layoffs.
All of this begs the question. Are these layoffs an efficiency drive or a desperate hurray for struggling companies? It seems like both can be true at the same time.
For the time being, companies like Mr. Block’s are still trading above their pre-layoff levels, but the doubt remains. In the grand scheme of things, reducing the workforce is a kind of stopgap measure.
If these companies want to fully recover their lost market value, they need to deliver the holy grail of AI: tangible outcomes that drive revenue.
