Wall Street is losing patience with ‘AI Layoffs’, Goldman Sachs warns, even as job cuts loom in 2026

For much of 2025, layoffs became a familiar corporate refrain. Executives across technology, finance and consumer sectors repeatedly justified job cuts as part of an artificial intelligence driven transformation. Automation, efficiency and “future-ready” organisations were the preferred explanations. But according to analysts at Goldman Sachs, Wall Street’s response to that narrative has changed sharply.

A recent Goldman Sachs analysis shows that companies announcing layoffs are now seeing their share prices fall, rather than rise. On average, stocks dropped around 2 percent following layoff announcements, reversing a long-standing pattern where investors often welcomed workforce reductions as a sign of tighter cost control and higher margins. Firms that described the cuts as “restructuring” were punished even more heavily.

The analysts argue that investors are increasingly sceptical of AI as a justification. While management teams have framed job losses as a strategic shift towards automation, markets appear to be interpreting them as signals of underlying weakness. In Goldman’s words, the equity market is treating layoffs as evidence of deteriorating prospects rather than confidence in long-term transformation.

This marks a clear break from the “efficiency flexing” that dominated earnings calls earlier in the year. Senior executives, including Andy Jassy at Amazon and finance leaders at JPMorgan Chase, openly discussed how AI could slow or even eliminate the need for future hiring. For a time, that messaging resonated with investors. Now, it appears to be wearing thin.

The shift reflects a broader discomfort with the idea of fully automated organisations. The limits of that narrative were highlighted recently when Klarna softened its aggressive stance on automation. CEO Sebastian Siemiatkowski, who had previously championed AI as a replacement for large parts of the workforce, acknowledged the importance of retaining human involvement to protect brand quality and customer trust. That reversal was widely seen as a signal that automation alone cannot replace judgement, service and accountability.

Despite this change in investor sentiment, Goldman Sachs does not expect layoffs to disappear. On the contrary, the bank forecasts a potential rise in job cuts through the remainder of 2025 and into 2026. Commentary from recent earnings calls suggests that many companies are still committed to using AI to reduce labour costs, even if the market reaction has turned negative.

A separate Goldman Sachs economic analysis paints a more nuanced picture of AI’s real-world impact on employment. Reviewing management commentary and results across nearly the entire S&P 500, senior economist Ronnie Walker found little evidence that AI is yet driving widespread layoffs at the economy-wide level. Instead, the clearest trend is a pullback in hiring. Companies that talk most aggressively about AI are posting fewer job openings, suggesting a freeze or slowdown rather than mass displacement.

Taken together, the findings point to a reset in how markets interpret AI-led restructuring. Investors are no longer rewarding headcount reductions as a sign of progress, especially when revenues are under pressure. At the same time, companies remain convinced that AI will eventually reshape their cost structures.

For 2026, that creates an uneasy balance. Layoffs may continue, but the market is no longer applauding them. The era when simply invoking AI was enough to justify cutting jobs appears to be ending, replaced by tougher scrutiny of whether automation is actually delivering sustainable growth.