SAN FRANCISCO – After more than a decade in tech, Casey Engler thought he was prepared for another round of industry layoffs. But when Microsoft cut his job in July, the shock still hit hard – and the long odds of finding new work in a year marked by job losses quickly set in.
“The first thing that went through my mind was this intense feeling of being freaked out and sad,” said the 44-year-old Seattle resident, who has since been chatting with Big Tech recruiters and brushing up on his programming skills. “It was like, ‘What are you going to do now that you’re in the same boat as everyone else?’”
Silicon Valley is in the midst of an unprecedented artificial intelligence boom, pouring billions of dollars into developing the technology. Revenue is surging, with Big Tech companies beating Wall Street’s expectations in their latest quarter. They’ve announced plans to invest up to $375 billion in AI infrastructure this year, as they expand the footprint of data centers that power their software.
But despite soaring revenue and record AI investments, companies continue to slash jobs. Technology firms have announced more than 141,000 job cuts so far this year, according to outplacement firm Challenger, Gray & Christmas, a 17 percent increase from the same period last year. In the last two years, the tech workforce has shrunk nationwide by about 3 percent a year, with California posting a much steeper 19 percent drop, according to data from the U.S. Bureau of Labor Statistics.
Economists and analysts say companies are being driven to rethink their workforces as they prepare for an era when AI may boost employee productivity and build structures that will help them move faster. What began as post-pandemic job costs are continuing as CEOs face pressure to maintain a lean headcount – a trend that could reshape work.
Big tech companies are seen as trendsetters for innovation and their moves could create playbooks for other industries to follow. Mark Muro, a Brookings Institution senior fellow, says the tech industry is being watched as it’s best situated to experiment with AI and its potential to transform businesses.
“It could be a signal of how AI is going to impinge on other sectors,” he said.
Enrico Moretti, economics professor at the University of California at Berkeley, said the tech sector is undergoing some of the most profound changes that it has seen in the last 20 years because of AI and the changes tech companies have undergone since the pandemic. “That’s one sector that’s most in turmoil right now.”
Tech companies are smashing records. Alphabet topped $100 billion in quarterly revenue this past quarter. Chipmaker Nvidia hit a $5 trillion market capitalization. The latest headcount numbers released by Alphabet, Microsoft, Apple and Meta show that their overall workforces have remained flat or grown as they reorganize around AI.
Despite strong financial numbers, the cuts in the sector keep coming. Alphabet has laid off hundreds of workers across many divisions this year. Amazon has announced that it would cut 14,000 workers this month. Meta has said it is cutting 600 jobs in its AI unit. Tech companies have backtracked on their former culture of “growth at all costs,” said Mark Mahaney, senior managing director at investment banking firm Evercore.
Microsoft said it’s been making targeted reductions in some areas but has continued to hire in “strategic growth areas” without giving more specifics. In a July memo to employees, Microsoft CEO Satya Nadella said the cuts had been “weighing” on him. He suggested that from “every objective measure, Microsoft is thriving” yet, at the same time undergone cuts.
“Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding,” he said in the memo. “But it’s also a new opportunity for us to shape, lead through, and have greater impact than ever before.”
Following cuts at Meta’s AI unit last month, chief AI officer Alexandr Wang told employees in a memo that the cuts aimed to make the team smaller and speed up the decision-making to have more impact.
Two years ago, Meta CEO Mark Zuckerberg shared a memo with employees calling 2023 “Meta’s year of efficiency,” in which he detailed plans to restructure, flatten the organization, cancel lower priority projects and reduce hiring rates. That year has turned into more than two, with other companies taking up similar moves. In a memo earlier this year, Amazon CEO Andy Jassy said job cuts were to reduce the layers of bureaucracy and help the company operate more like a start-up.
Some of the cuts may be due to efficiencies created by AI, Mahaney said. Productivity per employee is ticking upward, currently sitting at 30 percent above the normal trend over the past 10 years, Mahaney calculated, suggesting that AI could be one of the factors causing the rise.
But executives are also cutting due to the changing economic conditions, Moretti added. Interest rates were low during the pandemic, but in 2022, when the Federal Reserve started raising rates, tech companies immediately began deep cuts, he said.
Despite recent cuts, Meta’s AI unit called “superintelligence lab” is still currently hiring. Microsoft, which announced 15,000 cuts this year, listed hundreds of software engineering jobs as did Google and Amazon.
With AI, tech companies may need fewer workers to accomplish more so the job growth may not be massive, Moretti said. Still, there’s a growing ecosystem of AI start-ups and companies that support AI, which could also create jobs.
Box CEO Aaron Levie said his company is reorganizing by shifting more headcount to professionals who can proactively help customers with AI rather than frontline customer representatives.
Whether the number of tech jobs created will be as many as those lost is still unclear as are the types of jobs and functions AI might replace, economists said.
“The overall level of tech employment will be under pressure,” said Mark Zandi, Moody’s chief economist.
For tech employees who are used to secure jobs, the recent upheavals of layoffs and the AI boom have added a new sense of anxiety.
Kyle Zhang, a former Microsoft product manager in the Bay Area, said every couple of months for the three years he was at the company, he heard about cuts. It became so common that it was regular lunchtime fodder. He got news of his layoff in May, and his last day was in August.
“I was a little relieved,” said Zhang, who is now building his own businesses as a content creator and personal trainer. “I thought if I survive this layoff, there’s going to be more coming. I don’t want to live in fear.”
But for John Clark, who has spent almost three decades in the tech industry, the layoff put him one step closer to retirement. Clark, a former tech worker at Microsoft, had been laid off from the company once before. His second time around, he got notified while on vacation with his wife and grandkids. Clark, who had already set up a limited liability company a backup, said he was more prepared to receive the news this time around.
“I said, ‘I’m not going to let it bother me’ and I didn’t,” he said.
Though he plans to remain in consulting until he retires in a couple of years, he told his wife about a call he took with a Microsoft recruiter interested in hiring him for a third stint.
“I told her I wanted to make it a hat trick,” he said sarcastically.
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Gerrit De Vynck contributed to this report.
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