'A good scapegoat': Wall Street assesses latest AI-linked job cuts

Executives are increasingly citing AI as a reason for layoffs. Wall Street strategists say it may be too early to determine how much of it stems from genuine productivity gains versus the need to cut costs.

“I think there’s some real displacement. I think you’re also seeing executives use this as a good scapegoat for where they want to trim some of the fat,” Winthrop Capital chief investment officer Adam Coons told Yahoo Finance last week, after crypto trading platform Coinbase (COIN) announced plans to cut 14% of its workforce.

CEO Brian Armstrong cited “current market conditions” and a need to “optimize the Company’s operations for the AI era.” Coinbase also wanted to get rid of manager layers.

Meanwhile, Cloudflare (NET) announced a 20% workforce cut, affecting 1,100 workers. CEO Matthew Prince pointed to significant productivity gains from AI and autonomous agents, saying they made workers “two, 10, even 100 times more productive than they had been before.”

“It was like going from a manual to an electric screwdriver,” said Prince, later pushing back on the idea that the company was trying to reduce costs.

“This isn't a cost-cutting exercise or an assessment of individuals' performance,” he added.

Cloudflare joined a string of companies calling out AI as the reason for cuts.

Meta (META) recently announced a headcount reduction to reallocate resources to AI investments. Amazon (AMZN) and Block (BLOCK) also signaled that artificial intelligence reduced the need for workers.

Job cut announcements rose 38% in April, driven largely by mounting tech layoffs, according to Challenger, Gray & Christmas. AI was cited as the top reason for the second straight month.

Still, US job growth continued to strengthen in April as the unemployment rate remained flat. That’s mostly because of gains in areas such as healthcare, transportation and warehousing, and retail.

But Information employment — the BLS category used as a proxy for tech jobs — fell by 13,000. The group is now down 342,000 jobs, or 11%, from its November 2022 peak.

Real estate platform Opendoor (OPEN) has conducted numerous job cuts over the past few years. When asked about AI implementation during its earnings call, CEO Kaz Nejatian said, “Our goal isn't to use AI to cut 15% of our expenses by doing the same things we were doing, just cheaper.”

“What we want to do, given everything AI can do, is to rebuild our processes from scratch, from a blank piece of paper, so that we can use AI to have a fundamentally different process,” Nejatia added.

Opendoor shareholder and hedge fund manager Eric Jackson of EMJ Capital said investors should watch for companies adopting AI in a way that meaningfully adds to their bottom lines.