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In an all-too-common scenario these days, Cisco Systems recently reported record revenue and double-digit growth amid a simultaneous announcement that it would lay off about 4,000 people. The company attributed the layoffs to a new focus on AI infrastructure. These events are indicative of a recent trend in the tech industry, as companies are increasingly downsizing their workforce to enable greater AI investment. Like Cisco, executives at Amazon, IBM, Meta, and Oracle have cited AI as a factor behind recent layoffs, slowed hiring, and company restructuring.
Company leaders have begun to tout a future dominated by AI, in which they use software agents, automation tools, and AI systems to handle various aspects of work now performed by employees. While this trend has been most prominent in the tech industry, other types of companies have engaged in similar activities.
One outplacement firm estimates that in 2026 about 55,000 job cuts related to AI initiatives will occur. In April 2026, companies attributed over 21,000 planned layoffs to the rise of AI and other types of automation in their workplaces.
However, other experts aren’t so sure that all these job losses are directly attributable to automation initiatives. While some layoffs are admittedly direct results of AI, others are more motivated by the potential future impact of AI, leading to investments in those types of projects. Yet other layoffs are still products of corrections dwindling from the pandemic era. While AI and innovation may sway investors, actual productivity gains from AI are notoriously hard to measure and may not yet exist.
Traditionally, layoffs indicate distress, including declining revenue for companies and the economic pressures of a recession. However, many of the companies now announcing layoffs are more profitable than ever, relying on investors’ interests in declining employee counts and increasing AI projects. Companies are also spinning the negative message of layoffs into positive messages about technological advancement and increased efficiency, allowing for the reduction of operating expenses. To that end, layoffs may not be about AI replacing workers but about freeing up capital to invest in AI infrastructure for the future.
This practice, which many software companies have embraced, is now known as “AI-washing,” a term describing overstated claims about AI’s role in layoffs or company restructurings. In many cases, companies blaming layoffs on AI do not yet have automated initiatives in place to take over those employees’ functions. In other words, instead of replacing workers with AI, companies are laying off workers to free up capital to invest in AI, to automate those tasks in the future. Companies may be using AI as an excuse to justify downsizing necessitated by economic uncertainty, prior over-hiring, and pressure to increase profit margins.
Nonetheless, some forms of work, such as customer service, administrative support, and data processing — which involve repetitive, high-volume tasks governed by specific rules — are increasingly performed by automated systems. These tasks are narrowly defined enough to be ripe for automation. Still, humans are needed for larger, more complex roles in companies, including keeping automated functions running properly — at least for now. As a result, financial gains directly derived from automation are speculative, at best.
The other risk of relying too heavily on AI for restructuring purposes is the negative impact it will likely have on employee morale and trust, and employer reputation. AI-washing may satisfy investors and the public, but it may demoralize remaining employees and make them less willing to engage with these technological developments. Furthermore, some companies that aggressively reduced support-worker headcounts, such as Klarna and Duolingo, have now reversed some of those decisions and reinvested in human support staff.
Even though the World Economic Forum recently predicted that AI will displace 92 million jobs worldwide by 2030, AI could also result in as many as 170 million new jobs. Likewise, SHRM estimates that about 15% of U.S. employment is at least halfway automated, which translates to about 23.2 million jobs. As a result, a significant percentage of jobs could be at higher risk of AI-driven displacement.
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