The utilisation of artificial intelligence (AI) has become a prominent factor in job reductions within companies, particularly in the United States. A report by outplacement firm Challenger, Gray & Christmas indicates that AI has emerged as the leading reason for layoffs this year. This trend has rapidly escalated, with AI-related job cuts in the initial five months of 2026 already surpassing the total from both 2024 and 2025 combined.

Notably, the number of layoffs, which fell below 50,000 in February, has rebounded sharply. By March, announced reductions exceeded 60,000 and reached 83,000 in April, culminating in over 97,000 layoffs in May. This figure represents the highest number of announced cuts in May since the disruptions of the pandemic in 2020.

AI’s contribution to these job reductions has grown substantially. In January 2026, automation and AI were responsible for only 7 per cent of all announced job cuts. This percentage increased to 10 per cent in February, and by May, nearly 40 per cent of layoffs were attributed to AI. In May alone, approximately 39,000 roles were removed in relation to automation.

Tech Sector Experiences Major Workforce Reductions

The technology industry has been the most affected by this trend. US-based tech firms reported 38,242 job cuts in May, marking the highest monthly total since August 2024. So far this year, layoffs in the tech sector have surged by 66 per cent, totalling around 1.23 lakh positions, making it the leading industry in workforce reductions.

Andy Challenger, chief revenue officer at Challenger, Gray & Christmas, noted that AI has become the foremost justification for cutting jobs among companies. The rapid increase in AI-linked job exits has raised important questions about the implications for employees in the sector.

Research shows that while companies are investing heavily in AI, there is an ongoing debate regarding the consequences for employment. The juxtaposition of increased job cuts and rising AI expenditures indicates a complex dynamic within the workplace.

Companies Spend Heavily on AI Technologies

Despite the reductions in workforce, companies are significantly investing in AI tools. According to the Ramp AI Index, although overall spending on AI has not yet outpaced employee salaries, certain companies are nearing that threshold. The report highlights that the top 1 per cent of AI-adopting organisations, described as “AI-pilled,” spend an average of $7,500 per employee monthly on AI. When converted, this amounts to approximately Rs 6.4 lakh per employee per month.

The financial implications of these substantial AI expenditures have prompted discussions throughout the technology sector. Nvidia executives have pointed out that spending on AI infrastructure may sometimes exceed the costs associated with human labour. Additionally, the CEO of recruitment startup Mercor mentioned that their AI usage expenses for internal operations now surpass their workforce costs.

However, the Ramp report indicates that investissements in AI have not yet outstripped human compensation, with the average software engineer in the US earning around $16,000 per month, which is more than double the expenditure for even the most AI-intensive firms. Furthermore, spending patterns among companies widely vary, showing that while the top 10 per cent of AI-centric firms spend about $611 per employee monthly on AI, the median company allocates merely $11.38 per employee.

Despite this disparity, AI-related budgets are on the rise. Companies focusing heavily on AI realised a 14.1 per cent increase in spending per employee within the last month alone, as organisations explore various AI models and platforms to manage costs effectively.

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