Mark Zuckerberg has decided to unfriend roughly 8,000 employees at Meta. More than 10% of Meta’s workforce is being “let go” in the latest round of job losses in Big Tech, with Zuck attributing this to the “continued effort to run the company more effectively” and the “need to offset the other investments” that Meta is making.
It’s a stark reminder that white-collar jobs aren’t safe in the AI era. Those who shun AI tools are at risk of ruining their careers. Those who embrace AI and figure out how to adapt it to their needs at least have a fighting chance.
Corporate layoffs remain central to the bear case for software-as-a-service (SaaS) companies that have been obliterated in the market. The market is terrified of business models that depend on selling licences on a per-seat basis. Where SaaS was once seen as a high-quality, recurring revenue model, it is now believed to be facing existential risks.
Meta’s latest decision won’t do any favours for companies such as Salesforce (down 29% year-to-date) and Adobe (down 27%). These share prices have been trying to form a base in recent trading weeks and stop the slide, but there’s been no clear positive momentum for investors to get excited about. Even the SaaS names attracting some love from investors (including ServiceNow, down 31% year-to-date) are struggling to break out of recent trading ranges.
The pressure in these companies pales in comparison to that being applied to SaaS sector peer Intuit, the owner of Mailchimp, QuickBooks and more. Its share price has shed half its value year-to-date, with the market fearing that these platforms are even more vulnerable to disruption than the average SaaS ecosystem.
In a perfect example of “if you can’t beat ’em, then join ’em,” Intuit echoed Meta in the past week by announcing that it is “letting go of” 3,000 people. This landmark move affects nearly one in five employees! The Intuit CEO talks about “fundamentally re-engineering the operating model” in the e-mail to staff. No kidding.
The SaaS names are stuck in a brutal loop. If they don’t show a willingness to embrace AI and seek out efficiencies in their organisations, the market will punish them for lack of forward thinking and innovation. But if they cut costs and attribute it to AI, then they are simply validating the bear thesis that is crushing their valuation multiples.
Meanwhile, towards the other end of the AI value chain, the market is still looking for opportunities beyond Nvidia. Chip and memory companies (including Intel and SanDisk) have been achieving parabolic gains, fuelled by the unprecedented capex by the hyperscalers (such as Amazon and Alphabet).
Bond yields are threatening these eyewatering valuations with a rug pull, but we haven’t seen a major correction just yet.
With the market hungry for new ways to play the AI game, there’s a new trend emerging: the “democratisation of AI” as consumers seek hardware that is ready for all that the AI world will bring. This is the clever PR spin that Lenovo has put on this stage in the cycle. With its share price up 20% after the latest results, the market is lapping up the Lenovo narrative.
Lenovo’s AI revenue jumped 84% year-on-year to contribute 38% of group revenue in the fourth quarter. But a concept like “AI revenue” is open to so much interpretation that its usefulness is limited. It’s more helpful to focus on whether the underlying drivers of revenue are sensible and likely to accelerate or at least continue at this rapid rate.
In practice, Lenovo’s growth drivers include server and data centre infrastructure, AI PCs and smart devices and even AI consulting services. The most interesting area in this list is the consumer hardware, as this speaks directly to the AI inference era vs the model training era that we’ve been in for the past few years.
Companies are embedding the likes of Copilot and Claude into daily operations. Organisations are focusing on new operating structures that use a human-in-the-loop approach. Usage of AI models is ramping up dramatically. This creates obvious opportunities for a hardware company like Lenovo.
As the global leader in PC market share, Lenovo has scale advantages in manufacturing and distribution. And with the gap to second place at a 15-year high, Lenovo is going to make the most of this industrial advantage, even if it doesn’t enjoy the intellectual moat of the likes of Nvidia. But the real question is: just how high will this market’s obsession with narratives over sustainable competitive advantages take Lenovo?
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