Will 2024 be a boom or a bust for big tech? By one estimate, there have been more than 7,500 layoffs in the sector since the start of the year – a dispersal of pink slips that many hoped would have ceased after the deep job cuts of 2023.
However, as the US’s big tech earnings season gets under way this week, some analysts are predicting strong numbers. This batch of quarterly financial results may show that the industry has cleared out its pandemic-era overhiring and reorganised itself around cloud computing and AI - necessitating cuts in sectors with less rosy prospects. Analysts keen on AI say we are at the start of a tech bull market.
Since the start of the year, Google has laid off more than a thousand employees across hardware, ad sales, search, shopping, maps, policy, core engineering, Google Assistant and YouTube. The cuts are slight compared to last January, when the Google chief executive, Sundar Pichai, announced a 12,000-worker layoff, but Pichai has warned of more cuts to come.
In an internal memo last week, he told employees that Alphabet was “removing layers to simplify execution and drive velocity in some areas”.
“We have ambitious goals and will be investing in our big priorities this year,” Pichai said in the memo, obtained by the Verge. “The reality is that to create the capacity for this investment, we have to make tough choices.” But the cuts, he added, would not be “at the scale of last year’s reductions, and will not touch every team”.
The Alphabet Workers Union called the layoffs “needless” in a Wednesday post on X (formerly Twitter).
Amazon has also announced a fresh round of job cuts affecting hundreds of employees from its Prime Video and Amazon MGM studios divisions - part of a pullback from an overspend on entertainment and a refocus on core priorities such as online shopping logistics and new ones such as AI.
At Meta, where more than 20,000 jobs were cut last year, the excision of departments appears to have slowed but not stopped. Instagram eliminated a layer of management in mid-January, cutting 60 technical program managers. Last year it said it would add workers to support “priority areas” and shift the workforce composition to include more “higher-cost technical roles”.
And that may be the true story of tech in 2024. If Wedbush analyst Dan Ives is correct, job cuts are mostly done, and earnings season is going to be an occasion to “break out the popcorn”.
“The AI revolution is going to have beneficiaries but also companies that are on the wrong side of it, so they’ve got to cut costs in areas that are not producing revenue and double down on AI,” he says.
“It’s more of a reallocation than anything else, because 95% of the cost-cutting is in the rear-view mirror. But the strong are going to get stronger and the weaker hands are going to be exposed.”
But which hands are those? Apple may be banking on the Vision Pro headset, which goes on sale this month, and on new iPhone models with generative AI features, to boost lagging sales. A weak Chinese economy has forced the company to discount the prices of many of its smartphones and hope for a turnaround.
Last week, Bank of America securities analyst Wamsi Mohan offered an optimistic reading of Apple’s year, floating the potential for a “stronger multi-year iPhone upgrade cycle” that could come about in “anticipation of AI features”.
According to Ives, an increase in demand for enterprise software and cybersecurity, and a surge in demand around major AI projects, will be the key story for the earnings season, and will continue to be as the AI revolution gathers momentum.
The winners are already emerging. Last week, Microsoft surpassed Apple as the most valuable company globally for the first time since 2021, with a market capitalisation of close to $3tn. Last year, Microsoft cut 16,000 from its 232,000 headcount, and Wedbush recently estimated that Microsoft’s lead in AI could add $25bn to the company’s revenues by 2025.
“The shift to cloud and AI is having a massive effect on tech, including the reallocation of jobs and a lot of changes to Apple and Google,” says Ives. “AI monetisation is going to start with Nvidia and Microsoft, and we believe we’re seeing the beginning of a new tech bull market that began in the summer of 2023.”
