Cisco Prepares Second Round Of Layoffs Amid Increasing AI Skepticism: Report

The potential of generative AI to transform companies, industries, and societies has been widely touted around the clock by Wall Street analysts and MSM, resulting in what could be a trillion-dollar spending spree in capital investments by companies in the coming years. These investments will cover data centers, chips, AI infrastructure, and the power grid. However, given this context, as AI infrastructure is being built, one of America's largest networking equipment firms building AI infrastructure could be on the verge of thousands of layoffs. This news doesn't bode well for the AI bubble. 

Reuters, citing 'people familiar with the matter,' reports that Cisco plans to cut thousands of jobs in a second round of layoffs. These cuts could be similar in scale to the 4,000 layoffs in February and may be announced as early as next Wednesday.

Cisco is the largest maker of routers and switches that direct internet traffic. The company announced plans to deliver AI infrastructure solutions to data centers with Nvidia earlier this year. Sluggish demand and supply-chain constraints could indicate an emerging slowdown in building an AI compute-based environment. 

The latest data from Bloomberg shows Cisco employed around 84,900 people as of July 2023. That number does not include the February layoffs that Reuters first reported. At the time, we penned this note: "Cisco To Fire "Thousands, Adding To Firehose Of Tech Layoffs Since Beginning Of 2024." 

The bear market in Nvidia has some questioning valuations and whether the AI bubble has reached a near-term peak.

In early July, Goldman's Allison Nathan said despite the rising spending trends in "data centers, chips, other AI infrastructure, and the power grid" by companies, this has yet to translate into "efficiency gains among developers." 

The developing theme is that investor enthusiasm about the potential financial returns from AI has shifted to skepticism. In short, the trillions in market cap gained by the Big 7 - the biggest bubble in history - has yet to produce adequate returns. 

Potential Cisco layoffs, which would be the second round of the year, are an ominous sign for the stability of the AI bubble.