Tech layoffs are on the rise as Silicon Valley shifts focus towards artificial intelligence (AI), but this new trend is not as extensive as the massive job cuts seen in late 2022 and early 2023. Analysts suggest that this could be the beginning of a new normal in the tech sector.
Layoffs in tech sector
Since the start of the year, the tech sector has witnessed layoffs, though not on the same scale as the previous year. In 2023, tech companies shed hundreds of thousands of jobs, a response to the pandemic-induced hiring spree. This wave of layoffs, termed the “year of efficiency” by Meta (formerly Facebook), appears to have achieved its intended results, with major tech stocks currently performing strongly as they head into a highly anticipated quarterly earnings week.
Wedbush analysts believe that the era of massive layoffs is mostly behind us. According to Dan Ives, “Now you’re seeing more repositioning in big tech, where they’re spending and doubling down on AI while cutting back on non-strategic initiatives.”
Key earnings week ahead
Market analysts are closely watching for AI-related developments as Microsoft, Meta, Google, and Amazon prepare to release their financial results. These tech giants are expected to provide insights into their AI investments and strategies, which have become a central focus for the industry.
Last year, the tech sector experienced significant job losses, totaling 260,000, according to layoffs.fyi, a California-based tracking website specializing in the sector. In the first four weeks of this year, 24,584 layoffs have already been recorded across 93 companies. Notably, Apple has largely avoided the post-pandemic layoff wave.
Google’s announcement
Google CEO Sundar Pichai issued a warning to employees on January 18th, signaling layoffs at the company as it shifts its priorities, giving greater emphasis to AI and new initiatives. Pichai stated, “The reality is that to create the capacity for this investment, we have to make tough choices.” In January, Google implemented layoffs across various divisions, including ad sales, search, shopping, maps, policy, core engineering, and YouTube teams. Nevertheless, these layoffs are not as extensive as the 12,000 jobs cut by Google after Christmas the previous year.
Other tech giants follow suit
Around the same time, Amazon also announced tens of thousands of job cuts, particularly in its entertainment and streaming division. Microsoft, following its acquisition of Activision Blizzard, revealed plans to lay off nearly 2,000 workers from its gaming division.
Smaller tech startups have also been affected, with companies like eBay, Salesforce, Duolingo, and others cutting staff. These startups are struggling to maintain smaller employee numbers in a high-interest rate environment, which has restricted their access to financing.
Copycat effect and Wall Street approval
Roger Lee, the creator of layoffs.fyi, suggests that the layoffs are a result of over-hiring during the pandemic and a copycat effect, where companies announce layoffs because their competitors do so, seeking approval from Wall Street or venture capitalists. According to Lee, this behavior might encourage tech companies to cut costs and reduce staff.
Dan Ives of Wedbush notes that investors appreciate prudent spending decisions. He states, “Investors like seeing that there’s adults in the rooms when it comes to spending decisions. It sends a prudent message to investors, which is usually well-received by Wall Street.”
AI’s role in layoffs
Layoffs.fyi estimates that approximately 20 percent of job losses are related to AI and restructuring efforts connected to AI implementation. Silicon Valley is on the front lines of this shift, with some coding tasks now being performed by generative AI. The increased use of AI to enhance business operations is expected to impact every industry worldwide.
John Blevins, a guest lecturer at Cornell’s SC Johnson College of Business, states, “The wave of AI usage to improve business operations will affect every industry in every country. The tech sector, which moves faster than most others, is simply being altered by AI first.”
As the tech sector experiences a shift towards AI and cost-cutting measures, layoffs have become a common occurrence. While the massive layoffs of 2022 and 2023 may be in the past, the industry continues to adapt to new priorities and challenges. All eyes are now on the upcoming earnings reports of major tech companies, where AI investments and strategies are expected to play a crucial role in their financial performance.
