AI Causes Another 4,000 Layoffs

Cisco (NASDAQ: CSCO | CSCO Price Prediction), one of the older big tech companies in America, said in its earnings announcement that it would cut 4,000 jobs as it moves its businesses toward AI. Cisco calls itself “The critical infrastructure for the AI era.” That is a way to drive a stock up without really saying much.

Cisco’s results for the most recently announced quarter were OK, but well short of spectacular. Revenue rose 12% to $15.8 billion. EPS was up 37% to $.85. It is tiny compared to industry leaders like Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG). In that sense, it is barely a player.

Chuck Robbins, Chairman and CEO, wanted the market to think the numbers were a big deal and proof that it has moved into the AI era. “Cisco is well-positioned as the critical infrastructure for the AI era, building on our technology leadership and customer trust, while innovating at the speed and scale that our dynamic world demands.” Cisco management added the cuts were “truly the result of hyperscaler capex spilling downstream.” The announcement drove the company’s stock up by 15%. However, its market cap is a very modest $410 billion.

The question with Cisco is the same question as with other tech companies that have cut staff because of AI business improvements. The best example is Block (NYSE: SQ), which cut 40% of its staff in February. Are the AI layoffs a screen to cut costs and drive up earnings? Or, are AI-based work systems remarkably good for some companies? With most of the companies laying people off, it will be hard to tell.

The Cisco layoffs raise questions about AI and employment that are burning across the tech sector and, to some extent, the entire economy. Are AI and its applications so powerful that they can replace millions of jobs? Certainly, the sell-off in some stocks considered future victims of AI’s success shows investors are voting that AI is a way to streamline operations or replace them entirely.

The problem potentially goes deeper. AI may replace millions of jobs if it meets certain expectations. And, if those jobs can’t be replaced, unemployment will rise. Even the best AI applications cannot solve that problem.