Shocking Layoffs (Up to 10%) Could Be Bearish for These 2 Tech Stocks

Key Points

Microsoft just announced widespread early retirement buyouts for the first time in company history.

Meta is laying off 10% of its workforce to counteract the costs of other investments.

These job cuts could be a sign that big tech names are struggling to cover the costs of AI capex.

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Two of the biggest names in artificial intelligence (AI) just announced big job cuts. On Thursday, Microsoft (NASDAQ: MSFT) announced that it's offering early retirement to up to 7% of its U.S. workforce. On the same day, Meta Platforms (NASDAQ: META) said it would be laying off 10% of its employees (about 8,000 jobs) and ending plans to hire for 6,000 new job openings.

The stock market initially reacted harshly to the job cuts. META shares declined about 2.3% on Thursday, while MSFT was down about 4% that day. Both tech stocks recovered some losses on Friday but were still trading below their previous levels.

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Let's take a closer look at what these job cuts might mean for META and MSFT investors.

MSFT and META job cuts: AI revolution or AI washing?

The biggest reason for Meta's and Microsoft's layoffs and job cuts appears to be AI. Both tech companies are investing heavily in AI data centers and other AI capital expenditures. Both are trying to use AI to boost productivity and develop products.

But do these layoffs mean that Meta and Microsoft are successfully using AI to get more productive and profitable? This could be an example of "AI washing," where companies use AI as an excuse to lay off workers -- not because AI is replacing people, but because the companies are betting too heavily on expensive AI capital expenditures (capex) and overhyped AI products.

If Meta and Microsoft are truly boosting productivity with AI, that would be good news for AI stock investors. But companies that are AI washing might see bigger stock price declines in the future.

Microsoft: Will AI replace all workers in 2027?

The news about Microsoft's early retirement packages was a surprise. According to Bloomberg, this is the first time the company has ever offered voluntary buyouts of this scale.

Microsoft executives didn't comment publicly on the reason for the buyouts. But CEO Satya Nadella had previously said that AI is handling up to 30% of the company's coding work. And in February, Microsoft AI executive Mustafa Suleyman predicted that within the next 12 to 18 months, AI would be able to replace most white-collar work. If that's true, the company's early retirement buyouts will be a drop in the bucket compared to future mass unemployment for tech workers.

I'm skeptical. I don't believe AI tools like Microsoft Copilot will become good enough to replace all software developers, digital marketers, and other human "knowledge work" professionals anytime soon. It sounds arrogant and aggressive when company executives proclaim that their all-powerful product will put everyone out of a job -- they want us to believe that, because that's what they're selling.

The stock market isn't buying the hype. MSFT is down 12% year to date, and more than 20% in the past six months.

Meta Platforms: Offsetting "other investments"

According to Bloomberg, Meta told its employees that the 10% job reductions were being done as "part of our continued effort to run the company more efficiently" and "offset the other investments we're making." That's a sign that Meta layoffs are directly related to the company's big spending on AI capex.

Meta expects to spend $115 billion to $135 billion in 2026 on capital expenditures, including its Meta Superintelligence Labs AI efforts. But will Meta's AI investments lead to more profit for the company? Or is this another expensive, speculative effort like the metaverse? Meta CEO Mark Zuckerberg used to talk about the metaverse and virtual reality as if it were an inevitable future of the internet that would change everything -- he even changed the name of the company from Facebook.

But heavy spending on the heavily hyped metaverse cost the company $80 billion, and millions of new metaverse users (and advertisers) never materialized. As of March 2026, Meta's metaverse projects have been largely abandoned. In the past few years, the company has gone all-in on AI.

I'm more optimistic about Meta's ability to use AI for profitable purposes. The company seems to be deploying AI in ways that are driving results for its ad business -- by improving ad targeting and boosting engagement among social network users. Meta's AI investments might pay off. But shares are down 10% in the past six months and have underperformed the S&P 500 index for the past year.

It's possible that Meta and Microsoft investors will be big winners from a new revolution in AI-driven productivity. But the companies' recent job cuts don't inspire confidence. Instead of boosting profits and unleashing innovation, Microsoft's and Meta's AI spending could be weighing too heavily on the companies' cash flow. Investors will want to see how AI is driving better bottom-line results for these AI stocks, not just hype -- and soon.

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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.