Meta Continues 20% Layoffs: "Efficiency Revolution" in the AI Era or Cost Anxiety?

Source: Jin10 Data

Are the more layoffs at Meta ultimately a sign that the company still has redundancies to cut, or does it indicate that its AI investments are actually starting to pay off?

According to foreign media reports, Meta plans to lay off 20% of its staff (about 16,000 people), marking the largest layoffs since the end of 2022, aiming to offset the high costs of AI infrastructure and improve AI-assisted efficiency.

A top Wall Street analyst stated in a report on Monday that any further reduction in Meta’s workforce could actually mean the company is successfully transforming itself into an “AI-first” company. And this might not be good news for its competitors.

Although Meta Platforms (META.O) has made deep investments in AI, it has yet to release leading models like Google and OpenAI. Bernstein analyst Mark Shmulik said that Meta’s aggressive push to transform itself into a top-down AI company could give it an edge over competitors and trigger a wave of “panic” as peers scramble to follow suit.

Meta is investing hundreds of billions of dollars to build AI data centers and attracting talent to strengthen its AI research team. Last week, Reuters first reported that the company is weighing whether to cut jobs, with some management already asked to develop cost-cutting plans.

Shmulik from Bernstein said this could indicate that Meta has gained an advantage on a key front in AI competition. While winning with world-class cutting-edge models is possible, it can also beat competitors by deeply integrating AI into core business operations, thereby “indisputably expanding” its competitive moat.

Shmulik wrote, “Meta has already demonstrated significant returns from deploying AI into core workloads. But if the company can fundamentally redesign its operational system to truly make AI central, its potential cost and performance advantages could be hard to surpass.”

One indicator shows that Zuckerberg’s efficiency reforms over the past three years have been effective. According to data shared by Bernstein this week, Meta’s per capita revenue has been steadily increasing and surpassed Amazon last year. Only Pinterest has a higher metric.

Meanwhile, Bernstein’s report shows that Meta’s per capita capital expenditure and R&D investment are significantly higher than competitors, which may also explain the potential layoffs.

Investors seem to have responded positively to Meta’s consideration of further cost-cutting, with the stock rising about 2% in early Monday trading.

The company is also actively promoting AI applications internally. Previously, foreign media reported that Meta announced starting this year, employee performance evaluations will include scores based on “AI-driven impact,” and some teams’ use of these tools will be tracked.

Companies like Atlassian and Block recently cited AI as one of the reasons for layoffs, raising a question: are some corporate leaders engaging in “AI greenwashing,” using AI to mask other reasons for layoffs, such as financial issues or over-hiring during the COVID-19 pandemic?

Shmulik from Bernstein said that while there is indeed a possibility of “AI greenwashing” at Meta and other companies, layoffs could also indicate that companies are beginning to see efficiency improvements.

From late 2022 to early 2023, Zuckerberg announced the “Year of Efficiency,” cutting over 20,000 jobs, reducing non-technical roles, streamlining management layers, and helping the previously sluggish stock price rebound.

Shmulik stated that if Meta experiences a similar cycle again in the AI era, it could set a template for truly “AI-first” companies.

He wrote, “If a major company can redraw the blueprint for AI-enabled organizations, others will quickly try to copy… and we suspect this could trigger a series of hasty transformations, unformed strategies, and passive reorganizations across the industry ecosystem.”