The stock market's AI-layoff trade

• This post originally appeared in the Business Insider First Trade newsletter.
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In the tech industry right now, you either use AI or you get left behind. Companies know this, and they've gone all-in.

To most, this means adopting AI and using it to unlock efficiencies. But, in a growing number of cases, that increased efficiency has led to the layoffs of large swaths of employees.

The logic behind it is essentially "addition by subtraction." If a company can convince investors that AI is helping it simultaneously boost productivity and cut labor costs, that's a major plus for its stock. After all, future earnings growth rules all.

This isn't a new concept. Technological innovation has been displacing workers and streamlining businesses for generations. But what's notable about the current landscape is the size and increased frequency of layoffs, especially within tech.

Another layer is the fact that, in several recent high-profile examples, addition by subtraction has paid off immediately in the stock market.

• Just yesterday, Meta's stock climbed more than 3% intraday on reports that it's weighing layoffs of up to 20% of the company.
• On Feb. 25, Wisetech, a logistics software maker, saw shares spike 12% after cutting 2,000, or 30% of its staff.

• On Feb. 27, Block, the Jack Dorsey-led fintech firm, skyrocketed 17% after cutting 4,000, or about half of its staff.

  There are, of course, examples of firms whose job cuts failed to catalyze a stock boost (looking at you, HP, Salesforce, and Atlassian). It's not a foolproof method, but it's been successful enough that companies continue to use it.

  But before you go celebrate the brutal reality of addition by subtraction, consider these bullets, which correspond to the ones above:

  • Meta stock has still fallen more than 20% from mid-2025 highs.
  • Wisetech is down 60% over roughly the same period.
  • Block is 26% below 2025 highs, and has given back about 6% of its post-layoff gain.

  This all begs the question: are these layoffs tight efficiency plays, or are they desperate Hail Marys for struggling companies? It appears that both can be true at the same time.

  For the time being, the likes of Block — still trading above pre-layoff levels — are being given the benefit of the doubt. In the grand picture, labor-force reductions are a stopgap measure of sorts.

  If these companies ever want to fully recover the market value they've lost, they'll have to deliver the AI holy grail: tangible results that boost earnings.