Tech companies are spending more on people in order to spend less money on people

Artificial intelligence is eventually supposed to drive down headcount and the cost of labor. But for now it seems that tech companies are spending money (on labor, through stock) to make money. And by shelling out vast sums to attract top AI talent, they could end up reducing the capital returned to shareholders.

Stock-based compensation (SBC) labor costs in particular are up at AI firms like Meta, Broadcom, and Microsoft, Morgan Stanley reports, which calls it a trend that investors should be paying attention to.

“As SBC becomes a larger portion of overall costs, investors may need to weigh the trade-off between talent acquisition and potential shareholder dilution,” analysts led by Todd Castagno wrote.

During Meta’s latest earnings call, it was already a concern.

When asked about dilution, CFO Susan Li said the company was keeping an eye on it, but said, “We generally believe that our strong financial position is going to allow us to support these investments while continuing to repurchase shares as part of the sort of buyback program that offsets equity compensation and as well as provide quarterly cash dividend distributions to our investors.”

After Meta’s enormous bills for AI infrastructure, employee compensation, including SBC, is expected to be the “next largest driver of expense growth in 2026,” Li said, thanks to “investments that we’re making in technical talent.” That’s even as overall headcount declined at Meta.

That’s creating a strange situation where companies are spending more on people now to hopefully spend less on them later.

“While companies may be able to reduce overall headcount by adopting AI, Enablers (i.e., companies enabling AI for consumers and other businesses) continue to see rising labor costs in the near term due to large equity packages used to recruit critical talent,” the Morgan Stanley analysts wrote. “SBC growth has been exceeding total headcount growth across the large AI Enablers.”