There have been two types of layoffs in the past: layoffs cheered by investors and layoffs criticized by investors. The first category – involving the announcement of some kind of strategic realignment – has long been associated with gains in stocks. At the same time, if the layoffs are due to falling sales and rising costs, investors will sell.
But recently analysts at Goldman Sachs discovered a new twist.
“Relating recent layoff announcements to public company earnings and stock market data, we find that the recent increase in layoff announcements comes primarily from companies that attribute layoffs to benign factors, such as restructuring driven by automation and technological advancements.” But instead of rising, these stocks fell by an average of 2%. Companies that proposed restructuring were punished even more severely. As the analysts wrote, “This suggests that despite the benign rationale provided, the stock market still views recent layoff announcements as a negative signal for these companies’ prospects.”
This will be a pattern worth continuing to watch, as Goldman Sachs predicts layoffs “are likely to increase” given the comments they heard during earnings season, which they said were “partly driven by a desire to use artificial intelligence to reduce labor costs.”
So why have investors changed their minds about restructuring-driven layoffs?
The most obvious reason, Goldman Sachs analysts assert, is that they simply don’t believe what the company is saying. Analysts found that companies that recently announced layoffs “have seen higher capital expenditures, debt and interest expense growth this year than comparable companies in the same industry, while lower profit growth.” This means the layoffs “may actually be driven by more concerning reasons, such as the need to reduce costs to offset rising interest expenses and declining profitability.”
This is an interesting development, especially considering that bragging about layoffs and bragging about the percentage of jobs now done by AI has become a trend over the past few months, suggesting that CEOs, especially in the tech industry, are 100% on board with AI.
As Geoff Colvin writes in the book wealthExecutives like Amazon’s Andy Jassy, Target COO Michael Fiddelke (who became CEO in February) and JPMorgan Chase CFO Jeremy Barnum have spoken candidly about how AI-driven efficiency gains may limit the number of headcount they need in the future. As Colvin writes, the language more executives use to convey such messages “isn’t defensive or apologetic. Quite the opposite — it’s direct and assertive.” wealth 500 CEOs, fewer employees is becoming a badge of honor. “
While narratives of AI efficiency are certainly not going out of style anytime soon, they may go too far because wealthSharon Goldman recently reported. She wrote: “In May, just months after touting AI’s ability to replace human workers, Klarna CEO Sebastian Siemiatkowski reversed an AI-driven hiring freeze and announced that the company would be adding more employees. He told Bloomberg that Klarna Recruiting is happening right now to make sure that customers always have the option to talk to a real person, and I just think it’s really important from a brand perspective, from a company perspective, to make it clear to your customers that there’s always a person there if you want to,” he said.
This story originally appeared on Fortune.com
