Even Laying Off 100% of Its Workers Won't Recoup This Company's AI Costs

Meta Platforms (NASDAQ: META) has been making headlines for the wrong reasons. Last month, news broke that the company is planning to lay off about 10% of its workers on May 20. And according to Reuters, additional Meta job cuts are possible during the second half of the year.

Meta has been investing heavily in new artificial intelligence (AI) models and encouraging employees to use AI as much as possible. Are Meta's job cuts a sign that AI tools are already replacing people, bringing on mass unemployment in the tech industry? Not necessarily.

Uncertainty about layoffs and the company's massive spending on AI capital expenditures is driving down Meta stock. The company's shares are down almost 8% year to date and have underperformed the S&P 500 index for the past year.

Let's take a closer look at the full cost of Meta's AI ambitions, and why layoffs might not deliver much growth for shareholders.

Meta layoffs: Productivity boom, or AI-washing?

Meta Platforms is not the only tech company that's been cutting jobs lately. One big debate in the tech investing world right now is whether companies are effectively using AI to be more productive and need fewer people, or whether companies are laying off people for other economic reasons and using AI as an excuse.

On the company's most recent earnings call on April 29, CEO Mark Zuckerberg said that AI is "transforming" work at the company, and that Facebook is "seeing more and more examples where one or two people are building something in a week that would have previously taken dozens of people months."

But when Meta's 10% layoffs were announced earlier in April, a company executive was quoted by Bloomberg as saying that the reason for the job cuts as "part of our continued effort to run the company more efficiently and to allow us to offset the other investments we're making."

At a company town hall last Thursday, Zuckerberg told employees, according to Reuters, that "getting everyone internally to use AI tools and getting to do the work more efficiently is not the thing that's driving layoffs."

It seems unlikely that Meta's AI is already so good that it's replacing 10% of the company's workers. A more logical explanation for Meta's layoffs is that the company is spending too much on AI, not gaining too much from it.

Blowout spending on AI capex

Image source: Getty Images.

Another bit of bad Meta news came last Wednesday, when the company announced its most recent quarterly earnings. The biggest news was how much Meta is spending on capital expenditures, mostly AI capex: $125 billion to $145 billion in 2026, up by at least $10 billion from previous estimates.

Evercore ISI research cited by Bloomberg estimates that cutting 8,000 jobs will save Meta about $3 billion per year, or about $375,000 per job. But that's a drop in the bucket compared with how much the company is spending on AI. Ten percent of Meta's payroll cost about 2.4% of the low end of the estimated range for Meta's capex spending in 2026.

Even if Meta could replace 100% of its workers with AI, assuming the payroll costs were the same for the other 90% of its workforce, the company might save only $27 billion. This rough calculation suggests that Meta's AI capex costs are almost 4 to 5 times what it spends on human employee compensation.

It's possible that the company's AI research will develop blockbuster AI products that will take the world by storm and unleash a new golden age of productivity. But it's also possible that Zuckerberg is spending way too much on experiments that will never make a profit, just as he did with the $80 billion "Metaverse."

I'm not confident that Zuckerberg will be right about the future of AI. Even with its highly profitable advertising business and billions of global users, I don't trust Meta to recoup these billions of dollars of AI capex costs. Meta's layoffs feel like a bad sign. I wouldn't rate Meta stock as a buy.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.