This seems so backward to me. Since technology is all about achieving more with less work, shouldn't headcount always count against the valuation?

I've been wondering why a seemingly stable startup would go on a massive hiring spree leading to all kinds of chaos rather than take a more measured approach and have started to suspect that this is the reason right here.

Headcount absolutely does.

In the 90's there was a joke that they'd take the engineering headcount and multiply it by 10M (or something), subtract a multiple of management and there's your valuation.