Layoffs due to AI are no longer making Wall Street and investors happy, says Goldman Sachs; and also makes a prediction for 2026

Layoffs can be called as one of the 'biggest' words of 2025. Companies across sectors cut jobs. Some reasoned them on automation and some on restructuring or other factors. However, according to Goldman Sachs analysts, the era of Wall Street rewarding companies for cutting staff in the name of artificial intelligence may be coming to an end. A new report from Goldman Sachs analysts reveals a significant shift in market sentiment: Investors are beginning to punish firms that announce layoffs, even when those cuts are framed as strategic pivots toward automation and technological efficiency.

Historically, layoff announcements were often met with stock price bumps as investors anticipated leaner operations and higher margins. However, Goldman analysts found that recent layoff announcements resulted in an average stock price decline of 2%. Companies specifically citing "restructuring" were punished even more severely by the market.

While CEOs have spent months framing layoffs as a strategic shift toward AI-driven efficiency, Goldman analysts suggest investors aren't buying the narrative any longer. "This suggests that, despite the benign justifications offered, the equity market has perceived recent layoff announcements as a negative signal about these companies’ prospects," the analysts wrote. In short, investors suspect that "AI restructuring" is often a convenient cover for desperate cost-cutting necessitated by declining profitability of these companies.

The shift is said to mark a pivot from the trend of "efficiency flexing" seen earlier this year. Executives like Amazon’s Andy Jassy and JPMorgan Chase’s Jeremy Barnum have been vocal about how AI might limit future hiring needs.

However, the "human-free" narrative is already showing signs of overextension. Fortune recently highlighted Klarna CEO Sebastian Siemiatkowski, who famously touted AI’s ability to replace workers before abruptly reversing a hiring freeze. Siemiatkowski noted that maintaining a human touch is "critical" for brand integrity, signaling that the rush to automate may have reached a point of diminishing returns.

But why this does not mean end of layoffs in 2026

Despite the cool reception from the stock market, Goldman Sachs predicts a “potential rise” in layoffs through the remainder of the year. Commentary from recent earnings calls suggests that many firms remain committed to using AI to reduce labor costs, even as the market grows increasingly skeptical of the underlying motives.

Also, a recent economic analysis by Goldman Sachs revealed a bifurcated picture of artificial intelligence’s impact on the workforce, finding that while the technology’s role in current layoffs remains modest and unproven across the broader economy, companies focusing on AI in their workforce discussions have sharply curtailed their job openings in the last few months.

The findings, drawn from an analysis of third quarter corporate earnings commentary and results by senior economist Ronnie Walker, were drawn from management commentary and results across nearly all the S&P 500. It showed that a relationship between the overall labour market outcomes and AI exposure at the economy-wide level has yet to be established.