There used to be two types of layoffs: Those that investors cheered, and those that they panned. The first category\u2014which involved the announcement of some sort of strategic restructuring\u2014have long been associated with a pop in the stock. Meanwhile if the layoffs were due to declining sales and rising costs, investors would sell.\u00a0<\/p>\n
\n
But recently Goldman Sachs\u2019 analysts have picked up on a new twist.\u00a0<\/p>\n
\u201cLinking recent layoff announcements to public companies\u2019 earnings reports and stock market data, we find that the recent increase in layoff announcements came mainly from companies that attributed their layoffs to benign factors, such as restructuring driven by automation and technological advancements.\u201d But instead of going up, these stocks fell by an average of 2%. And companies that cited restructurings were punished even more harshly. As the analysts wrote, \u201cThis suggests that, despite the benign justifications offered, the equity market has perceived recent layoff announcements as a negative signal about these companies\u2019 prospects.\u201d<\/p>\n
This will be a pattern to continue watching, as Goldman predicts a \u201cpotential rise\u201d in layoffs given commentary they\u2019ve been hearing during earnings season, which they say is \u201cmotivated in part by a desire to use AI to reduce labor costs.\u201d<\/p>\n
So why have investors changed their tune on restructuring-driven layoffs?<\/p>\n
The most obvious reason, Goldman\u2019s analysts assert, is that they simply don\u2019t believe what companies are saying. The analysts found that companies that have announced layoffs recently have \u201cexperienced higher capex, debt, and interest expense growth and lower profit growth than comparable companies within the same industries this year.\u201d Meaning those staff cuts \u201cmight have actually been driven by more concerning reasons like the need to reduce costs to offset rising interest expense and declining profitability.\u201d<\/p>\n
It\u2019s an interesting development, particularly in light of the fact that bragging about layoffs and boasting about the percentage of work now done by AI has become something of a trend the past few months, a flex to show that that CEOs\u2014particularly in tech\u2014were 100% in on AI.\u00a0<\/p>\n
As Geoff Colvin wrote in Fortune<\/em>, Amazon\u2019s Andy Jassy, Target COO Michael Fiddelke (becoming CEO in February) and JPMorgan Chase CFO Jeremy Barnum are just a few of the execs who have talked candidly about how AI-driven efficiency gains may limit the number of people they\u2019ll need going forward. As Colvin wrote, the language more executives are using to communicate such messages \u201cisn\u2019t defensive or apologetic. Just the opposite\u2014it\u2019s direct and confident. Among Fortune<\/em> 500 CEOs, having fewer employees is becoming a badge of honor.\u201d<\/p>\nAnd while AI efficiency narratives certainly aren\u2019t going out of style anytime soon, they can go too far, as Fortune<\/em>\u2019s Sharon Goldman recently reported. As she wrote, \u201cIn May, just months after touting AI\u2019s 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. \u2018From a brand perspective, a company perspective, I just think it\u2019s so critical that you are clear to your customer that there will always be a human if you want,\u2019 he said.\u201d<\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"There used to be two types of layoffs: Those that investors cheered, and those that they panned. The first category\u2014which involved the announcement of some sort of strategic restructuring\u2014have long…<\/p>\n","protected":false},"author":877,"featured_media":7204,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[6],"tags":[1590,2502,2144,7496,8222,1746,2503,2394,1635],"jetpack_publicize_connections":[],"yoast_head":"\n
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