Companies are increasingly using artificial intelligence as justification for cutting headcount and trimming costs, rather than using the technology to boost productivity by redeploying workers, according to Morningstar Inc.
"The market, it seems, is squarely focused on what AI might destroy, and not the value it might create,” analyst Lochlan Halloway wrote in a note Thursday. Firms, such as Australian logistics software company Wisetech Global Ltd, have reacted by slashing their workforce when such redundancies have been a pattern before AI, he added.
Concerns over how AI could reshape economies and labor markets have dominated investor sentiment this month, fueling a retreat across sectors in what some have dubbed the "AI scare trade.” With earnings season and corporate guidance under closer scrutiny, firms will be now focusing on how AI may impact balance sheets.
Shares in WiseTech jumped 11% on Wednesday after the company said it would cut 2,000 roles within two years – roughly 30% of its workforce – to lock in AI-driven efficiency gains. Days later, US payments firm Block Inc announced plans to reduce its staff by more than 40%, sending the stock up 23% in extended trading.
For Wisetech, which is still early in its expansion story, the job cuts "may say more about how management teams are learning to frame cost cuts in 2026 than about what AI is actually doing,” Halloway said.
Such market reactions pointed to investor enthusiasm for cost savings tied to automation. But Morningstar remains skeptical. Companies could instead harness AI to improve productivity by redeploying employees into higher-value roles, rather than eliminating them.
"AI can, and probably will, disrupt the old way tech businesses operated,” Halloway wrote. "But the big incumbents are among those best placed to capitalise on it, and to build the tools we cannot yet imagine.” – Bloomberg
