I think you're mostly right.

This round of layoffs was telegraphed at a month or so ago. It's all related to banks getting spooked and pulling funding for their massive data center project and the OpenAI deal being on the rocks.

So, I don't think it's really about their product being good enough, it's more that they've bet the company on data centers and it's starting to look like they just don't have the skills to execute on it.