During Alphabet Inc.’s September-ending earnings call on October 29th, CFO Anat Ashkenazi told investors that the company wants to tamp down costs, noting it would mostly be on how it operates and runs its business. The following day, worried Googlers sought more details at a company’s all-hands meeting. CEO Sundar Pichai stuck to a similar refrain, without giving a direct yes or no to questions around layoffs. Mr. Pichai said efficiencies in headcount could also mean reallocation of human resource to streamline teams.

“When you’re doing something new and it’s going to take 10 people, if you are able to do it with eight people by making smart trade-offs somewhere, that’s a good example,” he noted. While Ms. Ashkenazi reassured that people are “one of the most important” assets to the company, Mr. Pichai did not wave off the possibility of layoffs. “If we are making companywide decisions, we’ll definitely let you know,” he said. Google’s head of recruiting, Brian Ong, added that it was a reality that the search giant was tightening hiring, and that workers would find fewer open positions.

Like other tech companies, Alphabet is overhauling its business processes with AI while fending off pressure from investors. Bank of America analysts had warned in June, post Ms. Ashkenazi’s appointment as the new CFO, that there was “potential for the company to ‘surprise’ with further self-help cost cutting actions after limited layoffs in 2024.”

Google is a microcosm of the transformation happening in many other tech firms. 

Employees at Big Tech companies have seen a steady stream of layoffs. Last year alone, based on various reports, nearly a lakh tech workers lost their jobs in just U.S.-based tech companies. 

This year, Google laid off more than 200 employees from its core engineering teams in May. During a previous internal meeting Pichai said the constant layoffs were necessary to “improve velocity” of the company. The Silicon Valley giant slashed hundreds of staff from their cloud unit, sales and engineering teams again in June.

In October, Meta started making similar small cuts across various segments including WhatsApp, Instagram and their Reality Labs division. This followed layoffs in done earlier in June. 

Meanwhile, in Amazon, CEO Andy Jassy said in September that he would restructure the e-commerce giant in a way that the ratio of individual contributors to managers increased by 15% by March 2025. A Morgan Stanley report estimated that this could mean eliminating around 13,834 managerial positions resulting in cost savings of between $2.1 billion to $3.6 billion. 

The company also announced a strict five days a week return-to-work policy starting from 2025. Disgruntled employees were convinced that this was a backdoor layoff tactic. Although Jassy denied this later, at an all-hands meeting days later, Matt Garman, CEO of Amazon Web Services said that displeased employees who were averse to the policy were free to seek employment elsewhere. 

Amazon also keeps closing down units in smatterings. In late October, it shut down its speedy brick-and-mortar delivery service called Amazon Today. A couple of weeks ago, it phased out its free-to-watch streaming service, Freevee. 

Microsoft laid off around 2,000 employees in its gaming unit, months after acquiring Activision Blizzard. Two other rounds of cuts were done consecutively in June and July in Azure, product and programme management segments. LinkedIn, owned by Microsoft laid off 200 employees unceremoniously just last week. 

Is AI just a ruse?

How much of the blame can truthfully be placed on AI deployment?

“This is a correction for a decade-long trend of over hiring in the sector. As easy capital went to the side-lines in 2022, it has become more difficult to start new tech companies and that takes away tech jobs,” explained Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University. 

“This is not really about AI, though you may be tempted to make it so. Most of the tech layoffs are happening at places that hired well before AI was even a glimmer in the market’s mind. This is a story of accountability eventually catching up at young tech companies that sold themselves on potential but have never have been able to monetise it,” he noted.

But even if it is a natural comedown, investors are now forced to reckon with the sky-high AI expenditures coupled with a long road before seeing any profitable returns.

Big Tech’s large capex

According to Visible Alpha, Microsoft will spend over $80 billion in the current fiscal year, which is a jump of more than $30 billion from the previous year. The Redmond, Washington-headquartered company also predicted slower growth for its cloud segment in the quarter.

Zuckerberg also pegged “significant acceleration” in costs to the pace with which Meta was building data centres and AI infrastructure. The company raised the low end of its capital expenditures guidance for 2024 to $38 billion from $37 billion after its earnings report, with the higher limit still at $40 billion.

Alphabet reported $13 billion in capital expenditures in the third quarter, and CFO Ashkenazi is intent on keeping it the same in the fourth quarter.

Meanwhile, Amazon CEO Andy Jassy said he plans to spend $75 billion on capex in 2024 and expects an even bigger number in 2025. Jassy told investors that GenAI “a really unusually large, maybe once-in-a-lifetime type of opportunity,” reassuring shareholders they would feel good “ in the long term.”

During the early days of AI, many thought that their jobs will be replaced.

Thomas Monteiro, lead analyst at Investing.com, points out that, “Saving a few specific sectors, AI hasn’t yet grown good enough to replace the bulk of human workers end-product-wise. However, what it did do is change companies’ priorities, meaning that these are rethinking how they allocate their resources, more than often taking the risk of replacing several otherwise essential workers for a highly disputed, expensive AI specialist.”

Labour force inflation and lack of clarity on how to monetise AI is also “forcing companies to figure out ways to become more efficient. But if they can’t cut from the expenses side because the competition will run them over once they figure out the AI game, what’s left? Well, only further reductions,” he added.

The market has been ruthless to companies that ignored the clarion call of AI at the opportune moment. Intel, a Silicon Valley icon, announced it would be laying off 15,000 employees earlier in August to accommodate a $10 billion savings plan after it became obvious that the company had gotten left behind in AI. To add insult to injury, the company was replaced on the Dow Jones Industrial Average index in November by Nvidia, a company that Intel tried to buy two decades ago.

Although the rate of tech layoffs have somewhat slowed, they haven’t fully stopped as bloated tech companies are shedding employees wherever they see fit.

“In a sense, layoffs are unavoidable,” Monteiro said. “Companies will always have a choice, and historically, we’ve seen companies challenging the status quo to reach good results by thinking outside the box. However, we currently live in a world where shareholder value is just as important as consumer value, and no one is willing to take the risk.”