Microsoft (MSFT) will cut less than 2.5% of its total workforce as early as next week. Following 15,000 layoffs last year, an estimated 5,000 more employees are expected to lose their jobs this time. The reason is that while artificial intelligence (AI) investment costs are growing exponentially, they are not immediately translating into profits.
Amid a recent wave of layoffs at U.S. big tech companies, opinions are divided over AI's impact on employment. Some argue that AI is reducing jobs, particularly for those early in their careers, while others contend it has the effect of increasing employment.
'Capital Spending Expected to Reach 293 Trillion Won This Year'... Stock Down 18%
Business Insider (BI), a U.S. economic media outlet, reported this Monday, citing sources. The layoffs target the sales, consulting, and Xbox gaming divisions. According to the U.S. Securities and Exchange Commission (SEC), Microsoft's total full-time headcount stood at approximately 228,000 as of June 30 last year, and about 5,000 people are expected to lose their jobs through this measure.
In addition, Microsoft is reportedly reviewing options for the Xbox gaming division, potentially including a spinoff or restructuring into a wholly owned subsidiary. Microsoft previously cut 6,000 jobs in May and 9,000 jobs (about 4% of the total) in July last year.
Microsoft's restructuring is interpreted as a measure to offset the burden of AI investment and weak earnings. Microsoft forecast that its capital expenditure (CAPEX) would reach $190 billion (about 293 trillion won) by December, exceeding Wall Street estimates. Third-quarter free cash flow (FCF) was $15.9 billion, down 10% from the same period last year.
Microsoft's fiscal third-quarter (January-March) revenue rose 18% from a year earlier, but revenue from the Intelligent Cloud division, which includes AI infrastructure and the cloud service Azure, fell short of market expectations, sending Microsoft's stock down 18.1% in June. The Wall Street Journal (WSJ), citing data compiled by market research firm FactSet, reported that June's decline in Microsoft's stock ranked fourth among the company's 10 largest monthly drops ever. Excluding this instance, the other nine were all during periods when the entire stock market was in crisis, such as the dot-com bubble collapse around 2000, the aftershocks of Black Monday between 1987 and 1989, and the 2008 financial crisis. The June case, showing a record-level drop driven by company-specific factors alone, is unusual.
Brad Reback, an analyst at investment bank Stifel, lowered his price target from $415 to $400 in a note on June 25, citing "pressure on Azure gross margins from accelerating capital expenditure." Despite rising costs, Microsoft maintains its optimistic view that investment will yield results once infrastructure construction is complete.
AI Increases Jobs vs. Reduces Jobs... Academia Also at Odds
Beyond Microsoft, many U.S. technology companies have recently been making massive investments in AI infrastructure while cutting staff to reduce costs. Meta, Facebook's parent company, announced a plan to cut 10% of its total workforce this year, and Amazon decided to lay off 16,000 employees worldwide. Oracle warned last week that it had cut 21,000 jobs over the past year and that AI investment and adoption could lead to further layoffs. Snap, Block, and Cisco have also recently linked layoffs of thousands of employees to AI.
However, a study has found that the companies investing most aggressively in AI are increasing their workforces faster than their competitors. According to a study reported by the Financial Times (FT), companies that used generative AI most intensively saw their office workforce grow by 10.2% overall in the first two years after adoption. The increase appeared regardless of rank or job type, and entry-level hiring rose 12%. In contrast, companies that adopted AI but at lower intensity—those in the bottom two-thirds of AI spending per employee—showed no significant change in headcount compared to the control group. Jointly authored by researchers at U.S. tech startups Ramp and Revelio Labs, the study covered about 22,000 U.S. companies and is the first to combine company-level headcount and AI spending data.
However, one labor economist told the FT that while the findings are interesting, they should be interpreted with caution, because the group in the sample that used AI most was generally made up of smaller companies. "It seems difficult to distinguish between 'companies that intensively adopted AI grow faster' and 'fast-growing small startups buy a lot of AI early on,'" he said.
Academic research on AI's impact on the labor market is mixed. A Stanford University study published last November found that entry-level employment fell 16% in job categories with high AI exposure. In contrast, a study of 280,000 companies by Harvard University economists last year found that while junior-level hiring declined at AI-adopting firms, senior-level positions were not significantly affected.
