After a recent surge in stock prices, tech companies have hit a rapid slump: over the past few days, as Reuters reports:

Alphabet dropped 5.6% after the Google-parent’s December-quarter ad revenue missed expectations.

Alphabet also said its spending on data centers to support its AI plans would jump this year, highlighting the costs of its fierce competition against AI rival Microsoft.

While Google Cloud revenue growth slightly topped Wall Street targets, boosted by interest in AI, Microsoft’s Azure grew faster.

Microsoft beat analyst estimates for quarterly revenue as new AI features helped attract customers to its cloud and Windows services. However, its stock fell 0.7% in extended trade after briefly hitting an intra-day record high earlier on Tuesday.

Noel Randewich, “AI companies lose $190 billion in market cap after Alphabet and Microsoft report, Reuters, January 30, 2024

Meanwhile, the tech sector — including the household names — has once again been hit by serious layoffs.

Google laid off 12,000 by e-mail last January. CEO Sundar Pichai told tells employees to expect more job cuts this year. Its fierce competitor Microsoft announced the layoffs of 10,000 last January. This January it laid of 1600 more from the gaming division.

PayPal said goodbye to 2500 employees this month, just as Wayfair did to 1000 and EBay to another 1000, which is 9% of its staff.

Tech stats site layoffs.fyi offers the following industry totals for comparison:

2022: 1064 tech companies w/ layoffs: 164, 969 employees laid off

2023: 1189 tech companies w/ layoffs: 262, 595 employees laid off

2024 to date: 107 tech companies w/ layoffs: 29,475 employees laid off

It’s something of a trend. Is AI taking over?

That depends on who you talk to. Here are some of the explanations offered:

Yes, more or less

Tech recruiter Art Zeile at CNBC: “These companies, in general, are reducing numbers of employees associated with product lines or divisions that have not been successful because they want to reposition themselves for AI.”

Jon Gold and Charlotte Trueman at Computerworld: “Jan. 17 Google to replace part of ad sales team with AI. Google’s ad sales team lost several hundred staff from its large customer department, part of the company’s move to automate some jobs with machine learning.”

“Nov. 20 [2023]: Amazon to cut jobs at Alexa unit to sharpen focus on generative AI. Amazon confirmed that it is planning to lay off several hundred workers at its Alexa division as part of a shift in focus to generative AI.”

“Oct. 16 [2023]: Generative AI forces Stack Overflow to lay off 28% of its workforce. Stack Overflow said it was laying off nearly a third of its workforce to replace it with generative AI-driven coding assistants.”

No, it’s a copycat phenomenon that pleases investors.

Bobby Allyn at NPR: “There is a herding effect in tech,” said Jeff Shulman, a professor at the University of Washington’s Foster School of Business, who follows the tech industry. “The layoffs seem to be helping their stock prices, so these companies see no reason to stop.”

Mike Isaac at New York Times: “There are three basic buckets of layoffs we’re seeing,” said Nabeel Hyatt, a general partner at the venture capital firm Spark Capital, which invests in tech companies. “Big, fat tech oligopolies looking for more growth and profit; there are the medium-size companies that over-hired during boom times; and there are the smaller start-ups that are just trying to gain runway to survive.”

Will replacing workers with AI really work or save money?

Big tech companies hope so but why is unclear, as David Meyer points out at Fortune:

In the words of Forrester analyst Lee Sustar, as quoted by the Financial Times, Alphabet and Microsoft’s customers are in “’buy AI now, figure out if it works later’ mode.” We can say for sure that lots of people are interested in AI and that building it out is hella expensive, but time will tell if we’re witnessing the effects of hype or something more sustainable.

David Meyer, “After Microsoft’s and Alphabet’s closely watched AI earnings, big questions remain, Fortune, February 1, 2024

The companies may see replacing workers with AI as only natural. After all, that’s the future their executives were told from childhood to expect. What’s less certain is that their strategy will, for example, improve profitability, as Victor Tangermann points out at Futurism:

A team of MIT researchers has found that in many instances, replacing human workers with AI is still more expensive than sticking with the people, a conclusion that flies in the face of current fears over the technology taking our jobs.

As detailed in a new paper, the team examined the cost-effectiveness of 1,000 “visual inspection” tasks across 800 occupations, such as inspecting food to see whether it’s gone bad. They discovered that just 23 percent of workers’ total wages “would be attractive to automate,” mainly because of the “large upfront costs of AI systems” — and that’s if the automatable tasks could even “be separated from other parts” of the jobs.

Victor Tangermann, “Oops! Replacing Workers With AI Is Actually More Expensive, MIT Finds. Not so fast,” Futurism, January 23, 2023 The paper is open access.

This picture could change in the future, of course, but predictions are always risky when they involve the future. 😉