Artificial Intelligence (or “AI”) is not the buzzword that props technology stocks higher. Layoffs do more for the share price than the AI hopes.
Over 120 tech firms announced over 32,000 job cuts through the five weeks of 2024. Readers may get the exact figures here: https://layoffs.fyi/. The blind trust in management for cutting costs to boost profits will work well in the near term. Meta Platforms (META) tripled its share price when it announced substantial job cuts around two years ago. Its abandonment of the metaverse and embracing of AI is another catalyst lifting META stock.
Snap (SNAP) revealed in its Feb. 5, 2024 Form 8-K filing that it would cut 10% of its staff. This will lower its staff count by 500. SNAP stock is a potential winner when it reports results today after the market closes.
Cybersecurity firm Okta, which failed to protect itself from hackers, cut 400 of its staff (7% of total). Announced on Feb. 1, OKTA stock slipped from around $85 to close at $82.77. The stock may rise as operating profits recover.
In fintech, PayPal (PYPL) cut a substantial 9% of its staff, or 2,500 people. Its CEO Alex Chriss said PayPal would become leaner and more efficient. It is turning to AI features to drive growth.
Risk
Worsening customer service quality from those companies, along with Salesforce and Zoom cutting jobs, is a risk. Overstaffing is the likely drag on the companies, which suggests the company improves services and speed of response to its customers.