Will AI Chickens come home to roost?

With recent earnings reports from Google, Microsoft, etc you might be confused. Decent enough earnings, but tech stocks abandandoned for safer shores.

Big Tech companies have played their “AI” and “layoff” cards. Can they keep juicing buzzwords and layoffs for stock growth? Or will they just end up in a downward spiral of trend+efficiency chasing having destroyed the employee trust needed to really innovate?

As a naive investor, I know how attractive bonds are right now. I can park my money in a US treasury bond, or heck, a high-interest savings account and get a guaranteed 4-5% return. Unless a stock looks REALLY good, and has high future growth potential, I’m not going to park much money there. A boring stock with decent growth just isn’t as nice as one of these safer assets.

Despite that, tech stocks seem to have been riding the highs of AI hype and cost cutting. Nvidia continued to blow away expectations. So every company has reoriented to be supposedly leaner, more focused, and to chase the AI trend.

But when those magical AI returns start to look like another steady business, then are these companies up Sh*t creek without a paddle? They’ve played the cards in their hand: AI, layoffs, etc. And we’ve seen the results.

Much has been written about the impact of layoffs on employee trust and company culture. Eventually those chickens come home to roost. Employees are happy to fix Gmail bugs, and have little incentive to invent a new market for their employer, when the work becomes about avoiding layoffs. When advocating for new, weird, scary product directions loses out to navigating internal politics and playing it safe to avoid layoffs, then something has become broken.

Perhaps that’s why even Google has chased AI hype spearheaded by another company - OpenAI. And why it seems that the while FAANG companies may have harmed their culture, small-medium companies increasingly attract burned out FAANG employees. It may actually be them that benefit from the potential steady growth, with better cultures, deeper trust between management and employees, and a higher appetite for taking risks.

In the end, I feel like we’re headed for a space of at best Big Tech stagnation, at worse, a downward spiral of quarterly trend chasing over innovating. But it’s still an exciting (if tumultous) time where small-to-medium companies can actually do what was once thought to be impossible: out-compete the increasingly stodgy, internally byzantine, risk-adverse, FAANG companies.

It’s an exciting time. Chaos is a ladder. If you go into this with a high-growth orientation, you CAN find great culture and innovation in a way we haven’t seen since the Dot Com startups really challenged the status quo. Only this time its those Dot Com darlings that have become the stodgy, legacy, overconfident companies that badly need to be disrupted.