Block's shares rally as Jack Dorsey cuts half his staff for AI

Block, Inc. (XYZ) founder and CEO Jack Dorsey revealed in a shareholder letter that the payments company is laying off about half its staff to become what he calls an "intelligence-native company" that will be "significantly more valuable" with a smaller staff.

In a 8-K filing with the Securities and Exchange Commission (SEC), the company said that the workforce reduction was being done to "better align our organizational structure with our operating model and strategic priorities."

At the core of this "operating model" for Block will be a heavier reliance on artificial intelligence and less reliance on "human capital."

“Intelligence tools have changed what it means to build and run a company," Dorsey said in his shareholder letter, describing what he calls Block's "core thesis."

“A significantly smaller team, using the tools we're building, can do more and do it better," he added. "And intelligence tool capabilities are compounding faster every week."

The company has been ramping up its spending on AI and is also building its own tool called Goose, an open-source agent that allows users to connect it to large language models (LLMs).

XYZ shares surged more than 23% in after-hours trading on Thursday and jumped more than 17% on Friday.

The rally comes after Block's shares had sunk more than 20% over the past month.

The reduction in staff could be the largest ever single percentage cut of workforce by a company on the S&P 500, as Quartz reported.

While Dorsey is touting the use of "intelligence tools" to drive efficiency at his company, some people are raising doubts about him citing AI as justification for laying off such a significant portion of his staff.

"Given that effective AI tools are very new, and we have little sense of how to organize work around them, it is hard to imagine a firm-wide sudden 50%+ efficiency gain that justifies massive organizational cuts," Ethan Mollick, an associate professor at the Wharton School of Business said in a post on LinkedIn.

"CEOs with vision who hired well should also use AI for expansion & augmentation, not decimation."

"I think it is worth taking the justification with a grain of salt," Mollick added.

Critics are also pointing out that Block threw a massive party just five months ago in which it brought in 8,000 employees from across the globe for a three-day festival in Oakland, California that featured performances from Jay-Z, Anderson.Paak, T-Pain and Soulja Boy.

The party reportedly cost the company over $68 million, which is roughly the equivalent of an annual payroll of about 200 employees.

In a response on X to Block's layoffs, investor Graham Stephen pointed to OpenAI CEO Sam Altman's assertion that “some firms are attributing job cuts to AI, when in reality, those layoffs were already planned or would have occurred regardless.”

"He describes this, along with other exaggerations of AI capabilities, as 'AI washing'...a tactic aimed at masking business issues," Stephen said.

Nonetheless, Dorsey insists that having a smaller staff utilizing "intelligence tools" will let Block "decide faster, ship faster, and learn faster."

"I don't think we're early to this realization. I think most companies are late," he said. "Within the next year, I believe the majority of companies will reach the same conclusion and make similar structural changes. I'd rather get there honestly and on our own terms than be forced into it reactively."