The wave of layoffs that made their way through the tech sector has raised a lot of questions. Most notably, what’s the cause of the latest wave of cuts? Some would argue that a correction from overhiring during the COVID days is to blame, while others might point the finger at the rise of generative AI and the early ascent of agentic AI.
Of course, it’s still early days for digital labor. And while there’s no reason overhiring and AI efficiencies can’t both be reasons for the recent layoffs and those to come, I still think investors should look to how some of the big firms in tech are shifting gears.
Is it AI efficiency to blame? Or is this a reallocation of capital to invest in a future of great AI efficiencies?
Even if it’s not AI that’s directly taking the jobs of workers, it’s no mystery that a handful of firms are prioritizing the allocation of capital towards AI and away from various other areas. Oracle (NYSE:ORCL | ORCL Price Prediction) reportedly made up to 30,000 in cuts to help it shift gears from its legacy business towards AI infrastructure.
Indeed, Oracle Cloud Infrastructure (OCI) is the growth engine that will keep Oracle humming in the future. And while other parts of the business can still ride higher as agentic AI gets where it needs to be, I do think it’s hard to argue against prioritizing AI chips, energy, and all the sort to make an aggressive move to where the puck is headed next in the fast-moving world of tech.
With the company continuing to post impressive numbers as the firm evolves into player number four in the hyperscaler race, questions linger as to where the industry is headed next.
AI efficiencies might be stealthier than you think
In any case, as AI efficiencies quietly work their way through the labor force, firms will have the option to continue the workforce cuts or tackle more projects as augmented employees become more productive while agentic colleagues enter the scene. Do more with less? Or do even more with what one already has? That’s the big question.
For now, we’ll have to wait and see what the next move is as the impact of AI continues to work its way through the economy.
Will economic productivity gains suddenly materialize in the second half of the year in a way that supercharges the S&P? Or is the technology still a ways off before the biggest margin gains can be had?
With Google, whose parent company is Alphabet (NASDAQ:GOOG), recently revealing that 75% of new code is generated by AI, I do think that it’s going to start getting harder to point the finger at factors beyond AI.
Is the rest of tech really going to be “late” with the cuts?
Add Block (NYSE:XYZ) and its big 4,000 in cuts (that comes out to a whopping 40% of its workforce) earlier in the year as well as Jack Dorsey’s view that other firms will be “late” in making similar cuts in the year due to the adoption of intelligence tools, and I think maybe it’s time to pay more attention to the remarks of the tech visionaries in the trenches rather than economists looking at cylical data from the past.
Block’s internal AI agent, Goose, appears to be a serious productivity driver, and not just some fancy AI wrapper to intrigue investors. Any way you look at it, something big is working its way through tech. And everyone should be ready for further labor market disruptions.
With tools like Anthropic’s Claude Code bringing into question the moats of software players and terms like “AI-native” becoming more than just buzzwords, I do think that many may be at risk of dismissing how much more disruptive the technology could become across corners of the market beyond software, especially as some mega AI IPOs look to tap into the pubic markets for capital in the coming year.
Could the big tech titans actually be cheaper than they seem if the bull case with agentic AI plays out? I guess only time will tell.
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