Companies are bragging about their staff cuts in the wake of artificial intelligence investments, reported the Wall Street Journal. Only one of them – Microsoft – could enjoy market-beating returns.
A closer look at the eight companies the Journal highlighted – Microsoft, Wells Fargo, Loomis, Bank of America, Verizon, Amazon, Intel and Union Pacific – reveals an important insight for investors: On average, they have posted mediocre gains this year – up 9.3% compared to an 8.9% rise in the S&P 500 – as of July 25, according to Google Finance.
Here’s why you should think twice before investing in the shares of companies promoting their headcount reduction in the wake of AI deployments:
- Touting job cuts may help CEOs defend their AI investments to their boards – but they do not boost their shares much.
- Stock prices rise when companies steadily beat revenue and earnings expectations and raise guidance – which most of the eight companies failed to do consistently over the four most recent quarters.
- Unless companies use AI to create new growth trajectories, the productivity benefits they tout are unlikely to yield above average investment returns.
Microsoft is the only one of the eight that beat and raised for the last four quarters. Since it is also getting growth from its AI investments, the company’s stock may be the only one of the eight likely to deliver above average investor returns.
Eight Companies Touting Their AI-Driven Job Cuts
The average stock price increase of the companies touting their AI-driven job cuts is just slightly ahead of the S&P 500’s increase so far in 2025.
Below are the companies along with their stock price change this year as of July 25 and what they have said about their job cuts:
- Microsoft (stock price increase: 22.7%). Microsoft will cut another 9,000 workers – bringing the total job eliminations to 15,000 in the last two months. The reason? To “reorient its business to AI,” noted the Journal. The layoffs weighed on Microsoft’s CEO, according to a July 24 memo from Satya Nadella.
- Wells Fargo (+20%). After the financial services giant’s headcount fell 23% over the last five years, Wells Fargo said attrition is “our friend,” according CEO Charlie Scharf’s comments on the bank’s most recent quarterly earnings call.
- Loomis (+12.3%). This Swedish cash-handling company says “it is managing to grow while reducing the number of employees,” noted the Journal.
- Bank of America (9.4%). The bank’s headcount has fallen from 300,000 to 212,000 – with 1,500 more employees cut so far in 2025. AI is helping Bank of America boost productivity. Wealth-management employees use AI to search and summarize information for clients; 17,000 programmers apply AI-coding technology, and 750 people deploy an AI chatbot to reconcile trades, CEO Brian Moynihan told the Journal.
- Verizon (7.1%). The telecom company has reduced headcount 4% in the last year. “We have been very efficient on managing our resources,” said Verizon CEO Hans Vestberg, according to the Journal. “So, very happy with that.”
- Amazon: (+5.1%). The e-commerce giant has cut about 27,000 employees since the start of 2022, TechCrunch reported. More cuts are on the way thanks to AI. “As we roll out more Generative AI and agents, it should change the way our work is done,” Amazon CEO Andy Jassy wrote employees in June. “We will need fewer people doing some of the jobs that are being done today, and more people doing other types of jobs,” he added.
- Intel (+2.4%). Intel plans to cut 15% of the chip giant’s staff and cut layers of middle management. “We need to rightsize and scale back the company,” CEO Lip-Bu Tan said July 24, according to the Journal.
- Union Pacific (-4.4%). Union Pacific said its labor productivity had reached a record quarterly high as the rail operator’s headcount fell by 3%, noted the Journal.
Job Cuts Do Not Make Investors Much Better Off
Job cut announcements rarely benefit investors. Moreover, such news tends to produce at most 2% stock price increases – if management convinces investors the layoffs are part of a broader AI strategy to enhance productivity.
Even such modest bumps last one to three trading days, according to academic research such as Stock investors’ reaction to layoff announcements: A meta-analysis. Moreover, if the layoffs are seen as a reaction to weak demand or lack a clear efficiency narrative, returns are flat or negative, academic research suggests.
So what makes investors better off? Stock prices tend to rise when companies beat investor expectations and raise their guidance. “Positive earnings surprises and upward guidance revisions typically lead to positive stock price reactions,” according to quantitative evidence from academic literature such as Warp Speed Price Moves: Jumps after Earnings Announcements.
Why Microsoft Stock May Have The Most Upside Of The Eight
Microsoft has outperformed the other seven companies when it comes to beating revenue and earnings per share expectations and raising guidance ahead of investor views over the last four quarters.
More specifically, Microsoft has surpassed investor revenue and EPS expectations in the most recent four quarters and provided positive guidance for the future – which in some cases exceeded consensus estimates.
These results suggest Microsoft is monetizing its AI initiatives through growth in demand for its cloud services, according to the company’s Q1 2025 earnings call transcript.
Why Amazon And Intel Staff Cuts Did Not Move Their Stocks Much
Amazon and Intel shares have fallen short of the S&P 500’s return over the last year. The shares of both companies took a beating because they did not consistently exceed investors’ revenue expectations and their guidance was disappointing.
For instance, Amazon beat analysts’ EPS expectations each quarter but did not consistently exceed their revenue estimates. Moreover, investors have expressed concern over the e-commerce giant’s sometimes cautious guidance for future quarters, reported Yahoo! Finance.
Intel suffered from slightly different problems. The chip giant consistently surpassed revenue estimates in the last four quarters but often missed EPS expectations and provided guidance for future quarters that often fallen short of investor expectations – indicating ongoing challenges in their turnaround strategy, noted Investing.com.
Companies that tout their job cuts may repel top talent – which could slow their growth. So, consider investing in the ones that consistently beat expectations and raise guidance above consensus with help from AI investments that yield faster growth.