Bill Gates Warns That AI Will Cause "Many Jobs to Disappear Forever." Is He Right?

This week, Bill Gates published a note that laid out his thoughts on navigating the "turbulent AI era," and part of it touched upon a fear that strikes close to home for many people. The note was filled with references to the job losses that AI could cause, and he said that he believes AI will cause "many jobs to disappear forever." He believes that entry-level and mid-level jobs are the most at risk.

However, Gates' opinions aren't universally agreed upon in the tech industry. Nvidia CEO Jensen Huang believes AI will kill tasks instead of jobs, and believes that the fears about what the tech could do to the nation's employment picture are overblown.

Stock investors have to pay attention to this trend. As AI evolves, tech companies with exposure to it should benefit. However, too many jobs being eliminated could send the unemployment rate soaring, reduce consumer spending, and trigger a recession.

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Tech layoffs have been capturing headlines

Many of the same tech giants that have been investing heavily in artificial intelligence have also been laying off workers. Almost 250,000 people were laid off from the tech sector last year, and 270,000 layoffs are projected to happen in it this year, according to Trueup.io.

Notably, those job cuts include Amazon laying off 16,000 workers in January and Oracle laying off 30,000 employees in March. The size of Amazon's layoff was small as a percentage of its massive workforce, but Oracle's layoff shrank its workforce by almost 20%.

Some of the recent layoffs may have been related to over-hiring during the pandemic. For instance, The Wall Street Journal published an article earlier this year detailing how U.S. companies are still conducting layoffs to reverse the pandemic hiring boom. This dynamic certainly played out for Oracle, which went from 132,000 full-time employees in its fiscal 2021 to 164,000 full-time employees in its fiscal 2023. That's a 24% increase over two years.

Oracle's $28.3 billion acquisition of Cerner in 2022 was a major driver of that boost in workforce, as it put 28,000 Cerner employees on Oracle's payroll. Aggressive pandemic-era hiring and acquisitions help explain why some tech companies are laying off people now.

Oracle now has 141,000 employees, which is still more than it had in fiscal 2021. This context makes it fair to argue that not all of the recent job cuts are tied to artificial intelligence.

Even with the tech layoffs, the U.S. has still been adding more jobs than it has been losing due to AI. Some people are losing their jobs because of AI, but the job market remains strong overall.

Technology is advancing rapidly

Artificial intelligence isn't replacing that many jobs so far. That's another argument from skeptics, and it's also a point Gates brought up in his note.

He warned that blue-collar jobs will soon be affected by AI, especially as robots become more affordable and advanced. He believes smart robots will be able to competitively perform many tasks in construction, hospitality, and other physical jobs "by the end of the decade." He also believes customer support and sales jobs will be among the first white-collar jobs to be affected.

While artificial intelligence will make some jobs unnecessary, it will also create new ones, especially in constructing data centers and ensuring that AI-powered robots perform at optimal levels. Gates recognized this, but noted that it will take a while for people to pivot.

"Many people will shift to other jobs, but the turmoil of losing work, getting retrained, and finding other work will be significant," he said.

How stock investors should approach job cuts

Strictly from an investment perspective, job cuts can boost corporations' bottom lines and yield higher returns for their shareholders. If a company can cut some jobs while boosting revenue, it could end up with higher net profit margins. Higher profits give companies the flexibility to distribute dividends, buy back shares, or invest in new initiatives.

If the job cuts happen slowly, that also gives those people enough time to find new jobs and rotate back into the workforce. If that process keeps the unemployment rate in check, the economy won't go into a downward spiral. Physical AI hasn't been adopted quickly enough yet to pose a meaningful employment challenge right now, but Gates believes the window will be closed by the end of the decade.

Problems can emerge for the broader stock market if layoffs occur too quickly and meaningfully impact overall consumer spending. The U.S. is likely multiple years away from accelerated AI-driven layoffs that would have real economic consequences if that type of change takes form. Investors shouldn't panic at this stage, but they should carefully monitor unemployment rates for any spikes. Statistically small, gradual layoffs won't do much damage to equities.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, and Oracle. The Motley Fool has a disclosure policy.