Finimize - ⚔️ AI vs. human staff

What’s going on here?

German software giant SAP seemed to find a shortcut leading to a more efficient business, and it involves laying off 8% of its staff.

What does this mean?

SAP made its name by developing software for businesses. So really, it would’ve been a glaring oversight if the firm hadn’t realized that AI software tools could help transform its own books. The German giant is expected to cut some 8% of its staff this year, a bid to free up funding for AI-focused initiatives. That said, SAP plans to keep its workforce at roughly today’s scale over the long term, building up specific departments while shrinking others. And the company seems confident, pulling its 2025 profit outlook up above market expectations.

Why should I care?

For markets: eBay’s big bid.

Usually it’s disgruntled employees deciding to ditch their workplaces at the start of the year, but just like SAP, Alphabet, Amazon, and BlackRock have already flipped the script with layoffs this month. Citigroup, too, expects to slash 20,000 jobs by the end of 2026, while Macy’s has planned to trim 3.5% of its employees this year, not counting seasonal staff. Online retailer eBay is predicted to let go of 9% of its full-time workers, as well, a result of tough competition from long-established household names Amazon and Walmart and emerging Chinese rivals Temu and Shein.

Zooming out: America is changing.

The Federal Reserve has cited the strong job market as a reason against making hasty interest rate cuts. After all, if the economy can hold its own without them, the central bank might as well squeeze inflation that little bit more. But if companies swap staff for AI faster than anticipated, the central bank may need to reconsider. That would bode well for the stock market: lower rates improve stocks’ valuations and make it cheaper for companies to reinvest in themselves.

What’s going on here?

Chip-making equipment manufacturer ASML’s orders more than tripled last quarter, as businesses around the world fell for the allure of AI.

What does this mean?

ASML is the only producer of the most sophisticated chip-making equipment out there, so the firm’s order sheets indicate the health of the industry at large. And right now, the sector’s long-running slump is nowhere to be seen. A record €9.2 billion ($10 billion) worth of orders were placed with ASML during the fourth quarter of the year, making analysts’ estimates of €3.6 billion look positively puny. That helped pull last quarter’s profit up by a better-than-expected 13% from the same time the year before. So naturally, investors showed their approval by sending ASML’s shares 10% higher on Wednesday – the biggest gain since November 2022.

Why should I care?

Zooming in: The break-up of the year.

China was a loyal customer to ASML last quarter. In fact, Chinese companies made up over a third of ASML’s sales, as they rushed to furnish factories before US and Dutch chip export rules came into effect. Now, harsher restrictions are slated for later this year, denting the amount of orders that will come in from China. But with demand for AI-suitable equipment expected to stay steady elsewhere, ASML expects sales to remain flat this year.

The bigger picture: AI is here to stay.

ASML believes that AI will be a buoy for its business for years to come, as the tech needs a huge amount of computing power to run. TSMC – the main chipmaker for AI stock market superstar Nvidia – thinks the same, forecasting its revenue to tick up by 20% this year after falling nearly 5% last year. The Semiconductor Industry Association has spotted the signs, too, reporting that the AI theme helped global chip sales rise in November for the first time in over a year.