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Welcome to another issue of Geek AI.

Today we'll be discussing a new report showing 42,000 tech workers were laid off in the first two months of 2024.

In particular, we'll cover why - despite their CEOs' claims to the contrary - it's likely most of these tech companies are replacing their employees with AI.

Let’s dive in.

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Earlier today I stumbled onto an article that discussed how 42,000 tech employees were laid off in the first two months of the year.

Which, at a pace of 21,000 per month, is on track to match the 263,000 that were fired during 2023 (a number that outpaced 2022's layoffs by 59%).

Admittedly, this number doesn't take into account job openings or new hires.

But with the IT sector (as an example) only adding 700 jobs last year, after adding a whopping 267,000 in 2022, it's clear the number of tech workers being fired far exceeds the number being hired.

On the one hand, there are multiple legitimate reasons for this trend. The most obvious of which is the fact most companies hired way too many employees during the tech bubble of 2021.

Second, with AI going viral last year, many tech companies abandoned old initiatives in favor of new, AI-focused ones. Which, in turn, would require them to hire new, AI-savvy employees while downsizing whichever departments were focused on the old initiatives.

Some people, however, believe a much simpler explanation:

Tech companies are firing employees and replacing them with AI...they just don't want to admit it to the public.

I was first exposed to this theory thanks to a video from David Shapiro. Then I started digging a little deeper and saw an article from media personality and NYU professor Scott Galloway arguing the same thing.

As someone who follows macroeconomics as part of my investing process, I tend to agree with their thesis.

On the surface, the economy is supposedly booming.

Both the S&P 500 and tech-heavy NASDAQ reached record highs today (after breaking record highs earlier this week). In addition, AI-proxy Nvidia's stock closed above a $2 Trillion market cap today (making it just the 3rd company in US history to achieve such a high valuation).

In short, the tech sector is red hot right now.

Sadly, the average American is struggling to pay their bills.

According to a January 30th, 2024 article on CNN, half of US tenants can't afford rent while another study shows one in eight struggle to afford food.

Which presents the crux of the problem:

Publicly held companies are driven by shareholder interests. Which in 99% of cases means profit. And as you may or may not know, human labor (employees) are most companies' largest expense.

Meaning, the easiest way to cut costs is by firing people. Especially when you can replace them with AI for pennies on the dollar.

Only problem is, firing people generates bad PR.

In economic downturns, the public is much more forgiving of layoffs given most companies wouldn't survive without cutting costs.

But with the technology sector booming, companies can't blame layoffs on a recession. And with most Americans struggling to get by, it would be wildly unpopular to confess they're firing people in favor of AI.

So what do they do instead?

Blame the legitimate reasons for layoffs (outlined above) while hiding the fact they're secretly replacing people with artificial intelligence.

Admittedly, the above theory is just that: A theory.

And to their credit, tech companies hired so many people in 2021 mass layoffs were inevitable.

But even if a mere 25% of the firings are driven by AI replacement, that's more than 60,000 knowledge workers being released into what is a brutally competitive white-collar job market each and every year.

Unfortunately, we'll never know the truth regarding why tech companies are firing so many people when the sector appears to be strong.

What we do know, however, is that companies - both public and privately held - are driven by profit. And if AI can help companies cut costs, the trend of tech workers being laid off will continue.

💡Wrap Up: While there's no "hard evidence," it's likely many of the layoffs in the tech industry are a result of companies a) firing excess workers from the previous hiring cycle, and b) replacing some of them with AI.

🤔Thought-Provoking Question: If you work in the tech sector, are you worried AI is a near-term threat to your job?

Interesting Tool ⚙️: Music maker Suno AI just upgraded their platform to v3 for paid users and I gotta say: It's pretty darn impressive. As someone who's been disappointed by most of the competing apps, this is one you could legitimately use to create copyright-free background music for videos.