TECH NEWS – By cutting close to 40% of its workforce, Block made a very public statement that the era of AI taking human jobs is here. Jack Dorsey told investors that new “intelligence tools” are reshaping how companies are built and operated. The stock surged on the news, but skeptics still pushed back, with Piper Sandler analysts reaffirming their sell call on the shares. For the past couple of years, the tech industry has argued over whether AI will truly wipe out jobs at scale or simply serve as cover for mass layoffs.

Jack Dorsey, co-founder and CEO of the Square parent, said Thursday that the company will eliminate roughly 40% of its workforce, taking head count from more than 10,000 to just under 6,000. He also spelled out the rationale, telling investors on Block’s earnings call that “intelligence tools” have fundamentally changed what it means to build and run a company. Dorsey implied that much of corporate America is about to move the same way, predicting that most businesses will arrive at that conclusion within a year.

“Our business is strong,” Dorsey wrote in a post on X. “Gross profit continues to grow, we continue to serve more and more customers, and profitability is improving.” “But something has changed.” Markets immediately rewarded the message, sending the stock up about 25% in extended trading on Thursday, before momentum cooled slightly on Friday, with shares finishing the session up 17%. Block also issued a full-year outlook that cleared estimates comfortably, even as the most recent quarter’s results were broadly in line with expectations.

Morgan Stanley analysts upgraded Block to overweight, arguing that AI-driven efficiency gains should translate into higher profitability. Goldman Sachs analysts lifted their price target, saying the cuts could push Block from the middle of the pack to near the top in fintech workforce productivity. Wells Fargo maintained its buy rating and described the quarter as “chock full of positive surprise.” Block expects to absorb $450 million to $500 million in restructuring costs, mostly front-loaded into the first quarter, with the bulk of the job cuts completed by midyear. Dorsey said he preferred doing it in one move rather than stretching the reductions over time. “Repeated rounds of cuts are destructive to morale, to focus, and to the trust that customers and shareholders place in our ability to lead,” he wrote.

AI Efficiencies

The scale of the move eclipses recent AI-linked cuts at Pinterest, CrowdStrike, and Chegg, and it lands as Wall Street’s AI-and-jobs debate keeps intensifying. Earlier this week, Citrini Research published a viral thought experiment titled “The 2028 Global Intelligence Crisis”, framed as a hypothetical memo from two years in the future warning that AI-driven layoffs could trigger a negative feedback loop of white-collar displacement, collapsing consumer spending, and systemic financial damage. While the piece drew plenty of criticism, including from Citadel Securities, the claim that AI-based head-count reductions would show up first at strong, profitable software companies now has a real-world reference point.

Block says it is now targeting more than $2 million in gross profit per employee, roughly four times where that figure stood before Covid. Goldman noted that the reductions appear concentrated in engineering roles rather than revenue-generating or regulatory functions, consistent with Block leaning on its in-house AI platform, Goose, to replace that work. “We are absolutely looking at efficiency moving forward,” Autodesk CEO Andrew Anagnost told CNBC’s “Squawk on the Street.” “We are going to hire less people at Autodesk because of efficiency.” “We’re certainly seeing engineering efficiency because of AI.”

Still, Dorsey’s explanation is not convincing everyone. Block expanded from roughly 4,000 employees in 2019 to nearly 13,000 during the pandemic, a point skeptics quickly highlighted across social media after the announcement. Dorsey acknowledged the overhiring on X, calling it a mistake he corrected in mid-2024. Goldman said the cut effectively brings Block’s head count back to 2020 levels. Dorsey also pursued aggressive hiring when he ran Twitter. After buying the company in 2022, Elon Musk cut roughly 80% of Twitter’s payroll within six months, and the platform was later renamed X.

Piper Sandler analysts reiterated their underweight rating on Block after Thursday’s report, pointing out that transaction losses rose to 18% of gross profit in the quarter, up from 14% in the prior quarter and 11% a year earlier. “Bottom line, while the right sizing from XYZ is being well received by investors and should boost ST profitability, it seems like an extreme step, and we remain skeptical of XYZ’s longer term growth profile,” the analysts wrote.

Source: CNBC