AI Layoffs Begin, But Klarna Has a Lesson

Job cuts are making a return—only this time, they aren’t about cost-cutting. Instead, they’re aimed at making room for AI. Meanwhile, Klarna offers a cautionary tale, having faced challenges since replacing its workforce with AI last year.

By Mohit Pandey

Microsoft is laying off 6,000 employees, with the majority of these cuts taking place in its headquarters in Washington. Teams across Xbox, LinkedIn, and Azure are affected. However, the layoffs aren’t driven by profits—Microsoft is doing better than ever. 

Instead, it focuses on “organisational and workforce adjustments” to align with its future goals, with a particular emphasis on AI.

Microsoft is set to spend $80 billion on AI infrastructure this year—an amount that exceeds the GDP of some countries. Internally, the company has reported that AI is already writing 20–30% of the code in certain divisions. 

As part of its downsizing efforts, management roles are being trimmed, and engineers are being asked to work with AI tools like GitHub Copilot. The company wants to operate more quickly and efficiently.

Chegg recently laid off 22% of its staff. Meanwhile, Duolingo dropped 10% of its workforce last month to adopt the ‘AI-first’ approach. CrowdStrike also announced a 5% job cut, equating to 500 jobs, as it relies on AI more than ever.

It’s a pattern we’re seeing across tech giants.

Google has eliminated at least 200 sales and partnerships roles following previous layoffs in its Android and Pixel teams. While the company is still hiring, it’s redirecting resources toward building massive AI data centres and expanding the use of Gemini across more products. 

As one former Google employee put it, “Everything not core to AI is now up for review.”

IBM quietly let go of hundreds in HR after its internal chatbot, AskHR, began handling over 94% of employee queries. However, IBM’s overall headcount remains unchanged. 

CEO Arvind Krishna said these employees are now working in AI sales and engineering. Watsonx, IBM’s generative AI platform, is already generating $6 billion in revenue.

The key takeaway: AI isn’t always about layoffs—it’s about reallocating resources. Yet, the shift towards AI is undeniable.

Meta has a similar approach. After declaring 2023 the ‘Year of Efficiency’, CEO Mark Zuckerberg had warned that 2024 would be intense. 

This year, Meta is streamlining management, downsizing teams, and heavily prioritising AI research, Reels monetisation, and its long-term bet on AR/VR. Another 5% of its workforce is expected to be impacted.

In April, Dell cut 12,000 jobs to pivot towards AI infrastructure. 

Moreover, Salesforce and HP have made targeted cuts, primarily outside engineering departments. 

PwC axed 1,500 roles in the US, citing overhiring during the pandemic and a renewed focus on automation. 

The situation is dire.

And then there’s Klarna, the cautionary tale of AI regret.

After replacing 700 customer support agents with AI last year, Klarna paused hiring to double down on automation. Now, CEO Sebastian Siemiatkowski is now reversing course. The company is hiring again—not just anyone, but human agents, in a flexible, “Uber-like” model.

Klarna is considering students, rural workers and remote freelancers to restore the human touch. The company isn’t abandoning AI; it’s incorporating it into the rebuilding process. 

However, Klarna has acknowledged that too much automation can negatively impact customer experience. “Really investing in the quality of human support is the way of the future for us,” Siemiatkowski said.

The message is clear: AI can scale, but trust still requires a human face.

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