According to a report from Challenger, Gray, and Christmas, 3,900 people lost their jobs due to AI last month. It is the first time that the firm listed AI as among the reasons for job losses. Here are the key takeaways from the report.
According to the report, US employers announced 80,089 job cuts last month which was 287% higher as compared to the corresponding month in 2022 and 20% higher as compared to April 2023.
The report added that overall US companies have announced 417,000 job cuts in the first five months of this year which is over four times the corresponding period last year.
Notably, while the US job market has added over 1.6 million new jobs in the first five months of 2023, the tech sector has seen widespread job losses and companies ranging from Meta Platforms, Amazon, Alphabet, and Salesforce have announced mass layoffs.
These companies overhired between 2021 and 2022 and amid slowing growth and falling profits have resorted to mass layoffs.
The Challenger, Gray, and Christmas report said that 19,598 layoffs in the month were due to the company shutting down – which is the highest in percentage terms.
Market Conditions Behind Half of the Layoffs in 2023
Market/economic conditions came second with 14,617 layoffs. However, when we look at the YTD layoffs, nearly half of the layoffs were attributable to the factor.
Notably, the common thread in most tech layoffs over the last year has been that companies hired for a different economic reality, and amid slowing revenue growth they now found themselves overstaffed.
For instance, Amazon’s 2022 revenue growth was around 9% which is the lowest ever while Meta Platforms’ revenues fell YoY for the first time ever.
Google’s search revenues also fell in the back half of the year amid the slowing digital ad spending.
Media investment group GroupM predicts in its new report that global ad spending would rise 5.9% in 2023 while digital ad spending would rise 8.4% – which would be the slowest pace of rise in digital ad spend since the 2009 financial crisis.
AI Was Blamed for 3,900 Layoffs in May
Meanwhile, for the first time ever The Challenger, Gray, and Christmas report listed AI as a reason for layoffs and attributed 3,900 job losses to AI.
Notably, in April, Dropbox announced that it would lay off 500 employees, or 16% of its workforce. While the company blamed slowing growth for the decision it also attributed it to the AI pivot which made some roles redundant.
In his blog, Dropbox CEO Drew Houston said that the “AI era of computing has finally arrived” which he termed as a more “consequential” reason for the layoffs.
Fascinating note from Dropbox CEO on laying off 500 people:
“The AI era of computing has finally arrived”
First letter I’ve seen explicitly call that out as a reason for layoffs pic.twitter.com/j884EfUxMr
— BuccoCapital Guy (@buccocapital) April 29, 2023
IBM is also pivoting to AI and has said that it would pause hiring for the nearly 7,800 roles that can be replaced by AI. Notably, among the many apprehensions related to AI have been related to its impact on existing jobs.
Even OpenAI CEO Sam Altman warned that AI could “eliminate” many jobs – while adding that it would create “much better ones.”
According to the World Economic Forum, a quarter of the jobs globally are set to be impacted by AI in the next five years.
AI Is Expected to Boost Productivity
Meanwhile, while many fear that AI would lead to widespread job losses, Goldman Sachs believes that AI would help increase productivity by 1.5% annually until the end of this decade.
It expects S&P 500 earnings to rise 30% or more by the end of this decade owing to AI. Nvidia’s fiscal first-quarter earnings last month revealed how AI can help US companies enhance their profits.
Nvidia reported revenues of $7.19 billion in the quarter that ended in April – a YoY rise of 19%. Wall Street analysts were expecting the metric at $6.52 billion while the company had forecast revenues of $6.50 billion during the fiscal fourth-quarter earnings call.
Nvidia forecast revenues of $11 billion for the fiscal second quarter which is way above the $7.15 billion that analysts were expecting – largely on account for the demand for its AI chips.
Notably, AI as an investment theme is quite popular among investors as is visible in the rally in AI stocks. C3.ai, which is among the rare pure-play listed AI stock is up almost 318% for the year which is around 10x of what the Nasdaq has delivered over the period.
That said, the worries about AI eliminating many of the current roles are not unfounded even as it might not be feasible for researchers to quantify it.
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