Tech companies will lay off employees due to AI, even when they’re profitable

In the future, technology companies will lay off employees even if they are financially sound. Only employees who align with a company’s AI strategy will be retained.

That’s what Om Malik argues, a tech veteran and investor who has worked in Silicon Valley for over 30 years.

For years, the tech sector has been generous to its employees, offering unheard-of perks and rewards for their skills, Malik proclaims. However, artificial intelligence (AI) has changed the relationship between employers and employees forever.

“Loyalty has become a one-way street: employees must be committed, but technology companies owe only ‘opportunities,’ as and if they deem necessary,” he writes on his personal blog.

Malik continues by saying that layoffs will be used for “strategic positioning,” regardless of a company’s financial health.

“Profit provides an opportunity to invest in transformation, which sometimes involves eliminating jobs,” he adds.

The Silicon Valley veteran deduced this from a memo that was sent by Microsoft CEO Satya Nadella last week. In it, Nadella tried to explain why he felt that the recent layoffs were necessary, despite the company doing well financially.

“By every objective measure, Microsoft is thriving: our market performance, strategic positioning, and growth all point up and to the right. (…) This is the enigma of success in an industry that has no franchise value. Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding. But it’s also a new opportunity for us to shape, lead through, and have greater impact than ever before,” Microsoft’s CEO wrote.

Nadella also talks about Microsoft’s ability to “unlearn” and “learn.”

“It requires us to meet changing customer needs by continuing to maintain and scale our current business, while also creating new categories with new business models and a new production function. This is inherently hard, and few companies can do both.”

According to Malik, what Nadella is trying to say is that AI will make companies more profitable while employing fewer people at the same time.

“The repeated mentions of ‘unlearning’ and ‘learning’ suggest that some employees’ skills have become outdated. Rather than invest in retraining, the company opted to hire fewer workers with more relevant expertise,” he observes.

Microsoft isn’t the first tech company to respond to AI. In April, Duolingo announced that it plans to become an ‘AI-first’ company and is gradually phasing out contractors. Amazon is actively expanding its use of AI and robotics, raising concerns among workers about their job security.

Last week, Co-Founder and CEO of OpenAI Sam Altman spoke at the Capital Framework for Large Banks conference in Washington, where he suggested that entire job categories will be eliminated in the future due to AI.