Meta may lay off 20% of staff while making two big statements about AI

By Christine Ji

The company reportedly plans mass layoffs as it sees productivity benefits from AI and faces investor pressure to offset its heavy spending

Bernstein analyst Mark Shmulik believes a reported 20% layoff could deliver an earnings boost of up to 5% this year.

Meta Platforms may shrink its workforce by up to 20% in a sign that artificial-intelligence productivity gains are finally materializing.

According to a Reuters report from Friday, Meta (META) has not finalized specific dates or details for cuts but is considering widespread reductions to its workforce. The company had nearly 79,000 employees as of its last annual filing.

A Meta spokesperson told Reuters, "This is speculative reporting about theoretical approaches." The company didn't respond to a MarketWatch request for comment.

But Wall Street seems encouraged that the company is thinking about paring back its staff. Shares rose 2.3% on Monday, after falling over 20% in the past six months on concerns of AI overspending.

Jefferies analyst Brent Thill wrote Sunday that a 20% reduction in headcount could increase Meta's annualized revenue per employee to $3.5 million from $2.2 million a year ago.

Meta plans to spend up to $135 billion on AI investment in 2026 alone, so some on Wall Street see layoffs as a significant offset to the company's heavy infrastructure spending.

Meta's reported layoffs could drastically reshape how companies approach hiring, according to Thill. "If Meta is willing to reduce headcount at this scale while ramping AI investment, we think it signals a broader shift: AI is increasingly driving productivity," Thill wrote.

Read: Meta further diversifies beyond Nvidia as it unveils four custom AI chips

Layoffs are happening at other software and internet companies to varying degrees. Last month, fintech company Block (XYZ) announced plans to cut its headcount to about 6,000 from over 10,000. That sparked a debate over whether AI is a genuine driver of efficiency or a convenient excuse for companies broadly looking to restructure. Both things may be true in Meta's case, Thill noted, given a view that many Big Tech companies could operate with 25% to 50% fewer employees and still sustain their growth and innovation velocity.

More: After Meta's AI spending spree, is it time for another 'year of efficiency'?

Meta is no stranger to sweeping layoffs. In late 2022, the company laid off 11,000 employees, or 13% of its workforce, as it geared up for its "year of efficiency" cost-cutting campaign.

The reported 20% workforce reductions would be the largest since then. According to Bernstein analyst Mark Shmulik, a layoff of this magnitude could drive 3% to 5% of earnings-per-share upside in 2026 and 4% to 7% upside in 2027, provided the savings are redeployed into AI innovation.

"Meta's probably the best-placed incumbent to pivot to an AI-enabled [organization] of the future," Shmulik wrote on Monday. He pointed to two paths to becoming an AI winner: building a "world-class" frontier large language model, or embedding AI deeply into the core business. With a recent report suggesting that the release of Meta's Avocado LLM will be delayed from this month to at least May, Shmulik said Meta's advantage will lie in the latter.

The company has "muscle memory" from the last round of layoffs, which helped Meta return to its engineering roots, Shmulik added. He's confident that Meta can lead the charge on AI-driven restructuring.

"If the company can now redesign their operations from the ground up to be AI-forward, their potential cost and performance advantage could be insurmountable," Shmulik wrote.

More: Why you shouldn't blame AI for the weak jobs data

-Christine Ji

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03-16-26 1605ET