By Dan Gallagher and Asa Fitch
Tech companies are rushing to trade their people for more chips. Some of those companies might come to regret the exchange.
Microsoft and Meta Platforms are just the latest major tech companies trying to scale back their workforces in the name of artificial intelligence. Meta's latest plans will cut about 8,000 people from its workforce. Microsoft, meanwhile, is trying to trim its own head count with a "voluntary retirement program," available to about 7% of its U.S. employees. That could lead to actual layoffs later if not enough take up the offer.
Oracle and Snap initiated major cuts in the past few weeks, while the financial-tech company Block, parent of Square and Cash App, announced in February a plan to cut 40% of its workforce, which amounts to more than 4,000 employees. Layoffs affecting 45,800 tech employees were announced last month, making March the worst month for reported tech-job reductions in at least two years, according to the tracking site Layoffs.fyi.
Companies are straining to portray the cuts as evidence that they are confident in an AI future in which more workers will be replaced by machines. They have been careful not to suggest any problems on the horizon. "We're not making this decision because we're in trouble," Block Chief Executive Jack Dorsey wrote in his announcement.
There is some trouble brewing, though. Tech companies are in effect playing a game of chicken with each other on capital-spending plans. They are shelling out as much as they can -- more than their rivals, they hope -- on AI chips and data centers that could put them in the lead in a race they feel they can't afford to lose. That in turn is heightening competition over who can use AI to help do more with a lot less, freeing up money to spend on expensive chips.
In some cases, though, cuts look more like efforts to correct for past overhiring, or simply to come into line with industry norms. Oracle's annual revenue per employee is lower than most other major software companies and less than a third of Microsoft's, according to data from S&P Global Market Intelligence. Snap's last reported head count was 65% above its pre-Covid level, even as the Snapchat parent consistently failed to turn an annual operating profit.
Dressing up layoffs as visionary moves for the age of AI carries certain risks. Rampant layoffs hurt morale and create an exit incentive for other employees, especially talented ones with alternatives. For all of AI's capabilities, people will be needed to figure out business models, deal with customers and, importantly, make sure AI tools are being deployed and used safely. Smart castaways might establish startups that end up competing with the big tech companies, a headache a large workforce helps protect against.
The layoffs also lend credence to a growing public perception that AI isn't a panacea but a job killer. That will feed a backlash that is already constraining AI, as more communities are fighting against the construction of massive data centers.
Adding to that backlash is the last thing needed by the companies emptying their coffers to pull ahead. Alphabet's Google, Meta, Amazon.com and Microsoft are collectively expected to spend $674 billion this year on capital expenditures, well over double what they spent two years ago, when AI spending was already seen as elevated. That is stretching the finances of companies with the world's deepest pockets. Amazon is expected to actually burn cash this year, while Meta's capital spending will account for more than half of its annual revenue.
Even for tech giants that are raking in revenue and profits, those numbers look increasingly worrisome. Debt for some large tech players is already on the rise: Meta's debt-to-equity ratio was 39% last year, up from just 8% five years prior. Some of the big players including Meta are engaging in off-balance-sheet financial wizardry to keep their AI computing growth humming.
The reduction in workforces sends two messages to investors. First, it indicates tech companies will stop at nothing to spend on AI, something markets have often cheered. Lately, though, not everyone's big capital-spending plans are drawing plaudits. Just ask Tesla, which saw its stock fall nearly 4% after recently raising its spending target to $25 billion this year.
Second, it says tech companies believe they can operate fine with fewer employees, even after a couple of years of cuts that followed a Covid-era hiring spree. Meta's head count crept up some following the company's "year of efficiency" cuts in 2023. It was still about 10% below its post-Covid high at the end of the fourth quarter.
Such moves can make the companies look better to investors because revenue per employee is a closely watched metric to measure efficiency. Wall Street analysts quizzed public U.S. tech companies about efficiency 29 times on earnings calls over the past two earnings cycles, nearly triple the rate those questions came up in the same period two years prior, according to data from AlphaSense.
Tech, though, was already not doing too badly in this area. The median annual revenue per employee among tech companies on the S&P 500 is about $669,000, which is 14% higher than the median for the entire index, according to data compiled by S&P Global Market Intelligence. The tech companies on the index with market capitalizations above $1 trillion average a little over $2 million in annual revenue per employee.
Slashing their workforce numbers even more could juice those numbers further. But not without some trade-offs.
Write to Dan Gallagher at dan.gallagher@wsj.com and Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
April 27, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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