Opinion

Mag-7 companies are making the highest revenue per employee – Then why the layoffs?

Despite booming revenue, tech giants like Google, Meta, and Amazon are cutting staff. We explain how AI automation, shareholder pressure, and tax laws drive this paradox

Team PGurus

November 1, 2025

AI over employees: Why Big Tech is shrinking its workforce

The layoff paradox: Why high-revenue tech giants are cutting staff

The Mag-7 companies (Meta, Apple, Amazon, Netflix, Google, Microsoft, and Nvidia) are performing well financially, but their recent mass layoffs—often resulting in stock price increases—reveal a fundamental shift in business goals, moving from market domination via growth to operational efficiency and AI-driven productivity.

1. The efficiency and AI mandate

The primary narrative executives are pushing is the transition to a “leaner” operating model enabled by Artificial Intelligence.

Automation of Roles: Companies are investing billions into AI infrastructure (like specialized chips and data centers). They are strategically cutting roles, particularly in middle management, administration, and support, that involve repeatable tasks like documentation, coordination, and synthesis, as these are the areas most susceptible to automation and efficiency gains from Generative AI tools.
Flattening the Hierarchy: Companies like Amazon and Meta have publicly stated goals to remove layers of management and reduce bureaucracy to operate “like the world’s largest startup” and increase speed and ownership.
Investment Shift: The cost savings from layoffs are often redirected immediately into AI research and development (R&D), signaling to investors a commitment to future growth powered by technology, not headcount.

2. Shareholder pressure and stock optics

In the current market, layoffs have become a performance signal that the stock market rewards.

Appeasing Investors: When a company announces mass layoffs, its stock price frequently rises, as investors interpret the move as proof of discipline, cost-cutting, and a commitment to maximizing profitability for shareholders.
Shifting Stigma: Layoffs used to signal poor financial health. Now, they signal a proactive, aggressive move toward a lower long-term payroll and a more efficient cost structure, even if the company is already highly profitable. This rewards the company for prioritizing short-term financial engineering.

3. Correction of pandemic over-hiring

Many tech giants admit they expanded too quickly during the COVID-19 pandemic and the subsequent zero-interest rate environment.

Excess Capacity: Between 2019 and 2022, many companies nearly doubled their employee headcount to meet the surge in demand for digital services. The current cuts represent a “market clearance” or “right-sizing” to adjust for slowing post-pandemic growth and economic uncertainty.
Cost Realignment: The rapid hiring spree led to elevated salary costs. Cutting long-serving or recent high-paid employees is a quick way to reduce the overall compensation budget, helping companies meet internal financial targets.

4. The Tax Code Catalyst (Section 174)

A less visible, but significant, financial factor is a change in the U.S. tax code.

R&D Amortization: Since 2022, Section 174 of the U.S. Tax Cuts and Jobs Act requires companies to capitalize and amortize (spread out) their domestic research and development (R&D) expenses (including engineering salaries) over five years, rather than fully deducting them in the year they are incurred.
Increased Cost of Labor: This change made hiring engineers and R&D staff immediately more expensive from a tax and cash flow perspective, providing an extra financial incentive for companies to reduce headcount, particularly in non-critical R&D areas, to maintain profit margins.

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Team PGurus

We are a team of focused individuals with expertise in at least one of the following fields viz. Journalism, Technology, Economics, Politics, Sports & Business. We are factual, accurate and unbiased.