AI layoffs lead to a surge? Morningstar criticizes: redeploying employees can unlock more value than simply "cutting" them

Companies are using AI as a “new narrative” for layoffs and cost-cutting, which the market is quickly pricing as a positive, but Morningstar (a global authority on third-party fund ratings and investment research) warns that this may mask a more important source of AI’s value: redeploying employees to improve productivity, rather than simply reducing headcount.

According to Bloomberg, Australian software company Wisetech Global announced it will cut 2,000 jobs within two years, about 30% of its workforce. After the announcement, its stock price rose 11%. U.S. payments company Block also announced plans to reduce its staff by over 40%, with its stock rising 23% in after-hours trading.

Morningstar analyst Lochlan Halloway stated in a report on Thursday that the market “seems to be only focused on what AI might destroy, rather than what it can create.” He believes that some companies have a history of layoffs, and AI is more often used to provide new justifications for layoffs rather than representing a true technological revolution.

This month, investor concerns about AI reshaping the economy and labor markets dominated sentiment, leading to some sector pullbacks, which some have called “AI panic trading.” As earnings season and performance guidance come under closer scrutiny, companies will focus more on explaining how AI impacts their balance sheets.

AI as a justification for cost reduction, not genuine productivity improvement

Morningstar points out that more and more companies are using AI as a reason to cut headcount and trim costs, rather than to unlock productivity through job and process adjustments.

Halloway believes this shift in market focus makes it easier for investors to see “layoffs” as direct proof of AI implementation, while ignoring the organizational redesign opportunities that technology can bring.

He adds in the report that some companies have historically had cyclical layoffs even before AI appeared, and AI does not necessarily change this pattern; it may instead alter how management expresses cost-cutting.

Layoffs drive stock premiums, investors chase AI-driven cost-cutting narratives

Wisetech Global’s stock reaction highlights this pricing logic. The company announced that AI would improve efficiency, with a plan to cut 2,000 jobs (about 30% of staff) over two years, and its stock rose 11%. Similarly, Block announced a reduction of over 40% in its workforce, and its stock increased 23% after hours.

Morningstar believes this reaction indicates investors’ strong preference for AI to reduce costs. In the short term, cost-cutting narratives are often more quickly reflected in profit expectations than productivity and growth stories.

Morningstar questions “AI equals layoffs,” advocates shifting human resources to high-value roles

Despite market enthusiasm, Morningstar remains cautious. Halloway emphasizes that companies can also use AI to boost productivity, but the path is not to eliminate jobs, rather to redeploy employees into higher-value roles, thereby unlocking additional output from AI.

He writes that AI “can, and very likely will,” disrupt traditional operational models of tech companies, but large, established firms are in a better position—they can leverage AI and build “new tools we cannot yet imagine.”

For Wisetech, still in early expansion, Halloway suggests its layoffs “may more reflect management learning how to craft a new narrative for cost reduction in 2026,” rather than AI having fundamentally changed its operational structure.

Earnings season focus: look beyond costs, see how AI changes the balance sheet

Amid the “AI panic trading” sentiment and earnings season, Morningstar’s key reminder is that investors need to distinguish between two things: cost reductions wrapped in AI narratives, and sustainable productivity improvements through organizational and role reconfigurations.

As companies’ disclosures and guidance become more scrutinized, the market will increasingly evaluate how AI truly impacts corporate balance sheets and operational quality, rather than just viewing layoffs as the sole indicator of efficiency gains.

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