Silent Firing
10/31/24 Prospero.Ai Investing (165th) Edition (Midweek)
There are a lot of exciting things about Prospero gaining momentum. Perhaps one of the most exciting is that I have access to platforms beyond this letter. This week my article on Silent Firing in FastCompany has been doing very well. Even the New York Post wrote about it! I am very grateful to everyone at FastCompany and the FastCompany Impact Council for providing business leaders like myself with the ability to share thought leadership pieces.
The article syncs very well with META earnings too! The main point of the article is that companies, especially big Tech, are pouring money into AI, and they need to show an ROI on this spend so they might be encouraging employees to quit in a way called “silent firing”. Google mentioned in their Q3 call that 25% of their code is now written by AI, what is to stop that from accelerating in accordance with Moore’s law – that for a while has posited that technology grows at an accelerated rate.
We believe this kind of technological progress is a big reason why Google did so well on its earnings call. Contrast this with META with similarly strong top and bottom line results that did not do as well. People pointed to weaker user numbers but to me that doesn’t hold as much water when you are beating on profit pretty handily and $6.03 EPS vs. $5.22 estimated. They also guided up on profits going forward (their midpoint was higher than the Wall St. consensus)
To me, I see a market that is continually nervous about META’s Capital Expenditures. For two reasons:
META has a bad history with the Metaverse of not getting ROI on major R&D project spend.
The path to monetizing this is not as clear as, for example, Google drastically reducing its expensive engineering workforce.
Indeed, META is relying more on open source frameworks like PyTorch and Llama. I can see why this would make the market nervous. But I am also bullish on the payoff of open source generally.
But to bring it all home, the point of Silent Firing is that I do think we are only scratching the surface of the labor reduction / cost cutting that is to come. And while I do think some companies will do as I suggest in the article - make especially white collar workers uncomfortable so they will quit and save on severance - I think some of that will be because jobs can be automated and other parts will be just balancing out those Capital Expenditures on Tech and AI.
If you are reading this and saying that sounds scary. I have two suggestions.
Learn how to use these tools. I am not just suggesting writing emails quicker. I’m suggesting that you think about how you might do the job of 2 or 3 people that sit around you.
Load up on the cloud providers (GOOGL, MSFT, AMZN) as well as META (because of their smart open source plays) as insurance. I do not see a world in which there is massive job loss and these companies aren’t major winners. Don’t get too cute with smaller cap companies either. They could gobble those up (as well as a lot of their less risky growth story) and/or put them out of business.
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