Big Tech earnings season kicks into high gear this week and you can already smell what’s coming…
Another parade of CEOs blaming AI for layoffs while hoping investors bid up the stock.
Same CNBC chyron. Same mainstream headline. Same lazy reflex: cut headcount, expand margins, juice the multiple.
I’m not buying it. And neither should you.
What’s The Big Skinny? I just sat down with Phil Rosen, Chief Market Strategist at Pro Cap Insights. His team of AI agents ran a three-year audit across the 35 biggest tech companies on the planet to settle the layoff-and-stock-price debate once and for all. What they found should make every “year of efficiency” cheerleader choke on their cold brew. [Watch our full conversation here.]
.1 Headline.
Remember that one?
Snap announces it’s cutting 16% of staff – AI-related of course – and the stock pops on the news.
Sounds plausible. Companies cut. Margins expand. Stocks rally.
Only one problem: the data doesn’t back it up.
Phil’s team deployed AI agents across millions of data points covering the 35 biggest tech companies over the last three years. They compared companies cutting headcount, keeping headcount flat, and aggressively hiring.
The result? Returns were essentially identical. Triple-digit gains across the board.
“The correlation was almost zero,” Rosen told me. “Whether companies maintained headcount, did layoffs, or grew aggressively, over a three-year horizon, returns are pretty much equal.”
Translation: the “year of efficiency” narrative Zuckerberg branded into the investing zeitgeist in 2023 makes for great PR, but lousy alpha.
“It’s a near-term sugar high,” Rosen said. “Zoom out and the signal disappears.”
So when management teams wave the AI wand this earnings season and announce another “strategic workforce realignment,” don’t fall for it. The real AI story is somewhere else.
.1 Chart.
The actual damage AI is doing to the labor market isn’t the layoff number. It’s the door slamming shut behind it.
The hiring rate started rolling over right as ChatGPT-4 hit corporate America’s bloodstream, and it hasn’t stopped.
According to Rosen’s math, the falling hiring rate accounts for roughly 1 million jobs that were never posted. That’s 37 times the number of so-called “AI layoffs” in Q1.
The real story isn’t who got fired. It’s who never got hired.
And it hits one demographic hardest: young people. College grads with zero experience are getting locked out of the labor market entirely.
“If we’re pulling the ladder up right now because we think AI can replace junior hires, there will be repercussions down the line,” Rosen warned.
Here’s the framework investors need this earnings season: the labor market has decoupled from economic growth.
Companies are squeezing more productivity out of fewer bodies. That’s why S&P 500 profit margins are sitting at a record high above 13%. That’s why earnings expectations barely blinked through the Iran scare and the V-shaped rebound that followed.
So when the talking heads tell you a soft jobs print means the economy is rolling over, be careful.
The labor market is now a siloed variable. Profit margins are the leading indicator that matters.
Now for the unexpected AI play nobody on financial Twitter is talking about…
.1 Investment Insight.
If the AI productivity story is real, the smart play isn’t blindly crowding into the same seven mega-cap names at premium multiples.
It’s finding the second- and third-order beneficiaries.
Enter the iShares Latin America 40 ETF $ILF ( ▲ 1.21% ), which provides access to 40 of the largest Latin American stocks in a single fund.
Phil has been pounding the table on this ETF since January. It’s already up 23% year-to-date, yet most investors still aren’t paying attention. But they should be.
Bank of America just turned bullish on Latin America, and the thesis is straightforward:
Cheap AI commodity exposure: Copper and industrial metals power every data center, transmission line, and cooling system. Latin America is where much of it comes out of the ground.
Brazil banks and fintech: Brazil is ILF’s largest country weight, and financial digitization remains a major structural tailwind.
Energy overlay: Petrobras is a top holding. Middle East tension keeps a bid under crude, no matter what the daily tape says.
Political tailwinds: Argentina’s Milei already lit a fire under his market. A broader regional shift toward market-friendly policy could attract more foreign capital and multiple expansion.
Then there’s the valuation. The average company in ILF trades at roughly 12.85x earnings versus about 30.84x for companies in the S&P 500.
The Big Skinny: The AI layoff narrative is a head fake. The correlation to stock returns is zero over any horizon that matters. The real story is record profit margins powered by a frozen hiring market. And the smarter AI trade may not be another $4 trillion mega-cap. It may be ILF – the cheap, under-owned, pick-and-shovel AI play already up 23% and counting.
.Before You Run….
Full episode: Watch my full conversation with Phil Rosen here.
Follow Phil’s research at ProCapInsights.com and his insights on Twitter.
Lou’s stock picks: Tune into Varney & Co. on Fox Business this Thursday from 11–12. Every week, I share 1–2 compelling stock picks on air.
For entertainment/educational purposes only. Not financial, legal, or tax advice; not a recommendation or solicitation. Terms & Conditions: TheBigSkinny.com.
