Previously, there were two kinds of layoffs: those that investors cheered and those they criticized. The first type, which involved announcing some form of strategic restructuring, had long been associated with a stock price increase. Meanwhile, if the layoffs were due to falling sales and rising costs, investors would sell.
However, recently, analysts at Goldman Sachs have noticed a new trend.
“By linking recent layoff announcements to public companies’ earnings reports and stock market data, we found that the recent increase in layoff announcements mainly came from companies that attributed their layoffs to favorable factors, such as restructuring driven by automation and technological advancements.” But instead of rising, these stocks dropped by an average of 2%. And companies that cited restructurings were punished even more severely. As the analysts wrote, “This indicates that, despite the favorable justifications provided, the equity market has regarded recent layoff announcements as a negative signal regarding these companies’ prospects.”
This is a pattern that will continue to be monitored, as Goldman predicts a “potential increase” in layoffs based on the commentary they’ve heard during the earnings season, which they say is “partially motivated by a desire to use AI to reduce labor costs.”
So, why have investors changed their stance on restructuring-driven layoffs?
The most obvious reason, according to Goldman’s analysts, is that they simply don’t believe what companies are saying. The analysts discovered that companies that have announced layoffs recently have “experienced higher capex, debt, and interest expense growth and lower profit growth compared to comparable companies within the same industries this year.” This means those staff cuts “might actually have been driven by more concerning reasons, like the need to reduce costs to offset rising interest expense and declining profitability.”
It’s an interesting development, especially considering that and has become somewhat of a trend in the past few months, a way to show that CEOs – particularly in tech – are fully committed to AI.
As Geoff Colvin wrote in , Amazon’s Andy Jassy, COO Michael Fiddelke (set to become CEO in February), and CFO Jeremy Barnum are just a few of the executives who have openly discussed how AI-driven efficiency gains may limit the number of people they’ll need in the future. As Colvin wrote, the language more executives are using to convey such messages “isn’t defensive or apologetic. Quite the contrary – it’s direct and confident. Among 500 CEOs, having fewer employees is becoming a mark of honor.”
And while AI efficiency narratives certainly aren’t going out of style anytime soon, they can be taken too far, as ‘s Sharon Goldman recently reported. As she wrote, “In May, just months after touting AI’s ability to replace human workers, Klarna CEO Sebastian Siemiatkowski reversed an AI-driven hiring freeze and announced the company is adding more human staff. He told Bloomberg that Klarna is now hiring to ensure customers always have the option to speak with a real person. ‘From a brand perspective, a company perspective, I just think it’s so crucial that you make it clear to your customer that there will always be a human if they want,’ he said.”