The brutal metric companies are using to show their AI bets are justified

"In the absence of standardized metrics demonstrating AI productivity, job cuts are becoming an easily digestible signal to investors. The cheapest way for a CEO to boost a company's stock price - and to signal readiness to capitalize on the AI boom - is to conduct a "noisy round of layoffs," according to Michael Blank, assistant professor of finance at Stanford Graduate School of Business."

"Block cofounder and CEO Jack Dorsey announced plans to lay off about 40% of the company's workforce, shrinking it from more than 10,000 employees to fewer than 6,000. He said the move comes even as the company remains healthy and profits continue to rise. Investors cheered the move, sending the company's shares up more than 16% on Friday."

"Blank said that conducting layoffs can indicate that a company's integration of AI has progressed to the point where it's past experimentation and that its employees can now get more done with less coworker support, signaling to investors that the company is ready to capitalize on the AI boom."

Companies investing billions in AI face pressure from Wall Street to demonstrate returns on those investments. Many CEOs are responding by announcing significant workforce reductions while highlighting AI's transformative potential. Block's Jack Dorsey exemplifies this trend, cutting 40% of staff while the company remains profitable, prompting a 16% stock price increase. Other major companies including Salesforce, HP, and IBM have similarly linked layoffs to AI productivity gains. Without standardized metrics to measure AI productivity, job cuts serve as a visible signal to investors that companies have moved beyond AI experimentation to operational implementation where fewer workers accomplish more.

Read at Business Insider