The Real Reason Behind Tech Layoffs: It's Not AI Taking Jobs, It's AI Spending

The AI Job Replacement Myth

For decades, we've been told that artificial intelligence systems would soon replace human workers. Sixty years ago, Nobel Prize winner Herbert Simon predicted machines would be capable of doing any human work within 20 years. More recently, books like A World Without Work have reinforced this bleak narrative.

Is AI Finally Replacing Workers?

With ChatGPT now three years old, many believe large language models will finally deliver on the promise of AI replacing human workers. LLMs can write emails, summarize documents, and perform many managerial tasks. Other forms of generative AI can create images, videos, and code.

Major companies like Amazon, General Motors, and Booz Allen Hamilton have announced layoffs blamed on AI. Amazon plans to cut 14,000 corporate jobs, UPS reduced management by 14,000 positions, and Target eliminated 1,800 corporate roles. The St. Louis Federal Reserve found a weak correlation between AI exposure and adoption in some occupations.

The Reality: AI Projects Are Failing

However, evidence suggests AI isn't actually responsible for these layoffs. A recent MIT Media Lab study found that 95% of generative AI pilot projects are failing. An Atlassian survey concluded that 96% of businesses haven't seen dramatic improvements in efficiency or quality. Another study found that 40% of professionals receive "AI slop" at work, taking nearly two hours to fix each instance.

The True Culprit: Financial Stress from AI Spending

If AI isn't delivering results, what's driving the layoffs? Experts point to several factors:

• Post-pandemic hiring corrections when interest rates were near zero
• Economic fears about tariffs, visa restrictions, and government debt
• Massive AI infrastructure spending without corresponding revenue increases

Companies are experiencing severe financial stress from their huge AI investments. Amazon increased capital expenditures from $54 billion in 2023 to an estimated $118 billion in 2025. Meta secured a $27 billion credit line for data centers. Oracle plans to borrow $25 billion annually for AI contracts.

The Cost-Cutting Excuse

As Pratik Ratadiya of AI startup Narravance noted: "We're running out of simple ways to secure more funding, so cost-cutting will follow. Companies have overspent on LLMs before establishing a sustainable financial model."

When companies face financial pressure, laying off workers becomes an easy solution. AI serves as a convenient excuse for this cost-cutting. After Amazon's 14,000 job cuts, an executive initially credited AI for enabling faster innovation, but another representative later admitted "AI is not the reason behind the vast majority of reductions." CEO Andy Jassy confirmed the layoffs were "not even really AI driven."

The Revenue Reality Gap

The numbers don't support AI-driven layoffs. AI infrastructure spending may approach $1 trillion for 2025, while AI revenue won't exceed $30 billion this year. Such small revenue can't possibly justify economy-wide job cuts.

Investment Paradox

Investors face a dilemma: AI spending benefits sellers like Nvidia (market cap over $5 trillion) but hurts buyers like OpenAI (projecting $115 billion in cumulative losses by 2029). The lack of transparency compounds the problem, as most tech companies don't separate AI revenue from other business lines.

The Human Cost

Meanwhile, college graduates struggle to find jobs, and many young people believe the "end-of-work" narrative makes career preparation pointless. Ironically, surrendering to this mindset makes them less employable. The exaggerated claims from AI promoters help raise funds but divert resources from more promising pursuits.