Wall Street is all-in on Block's AI-focused restructuring

When Block, Inc. (XYX) founder and CEO Jack Dorsey recently revealed in a shareholder letter that the company was laying off about half its staff to transition into an "intelligence company" that relies on a smaller staff utilizing AI tools, a lot of skeptics weren't buying his justification for the cuts.

“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."

Dorsey added that he believes "the majority of companies will reach the same conclusion and make similar structural changes."

XYZ shares jumped 23% in after-hours trading last Thursday following the announcement and then gained another 17% during the next trading day.

But a number of industry experts accused Dorsey on social media of essentially using "AI whitewashing" - a term coined by OpenAI CEO Sam Altman, which he's defined as executives using artificial intelligence as a reason for layoffs when the cuts are actually being done in response to poor business decisions.

"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.

Former Block employee Jason Karsh noted in a post on X that at the end of 2019, Block had 3,835 employees. The company then went on a massive hiring spree during the Covid-19 pandemic and by 2022 the headcount had more than tripled to over 12,000.

Block had roughly 8,000 employees when Dorsey announced that about 4,000 would be laid off.

“Block cut 40% of its workforce. Jack says it's AI. The stock popped 24%,” Karsh said. “I used to work there. This isn't an AI story — it's organizational bloat wearing an AI costume.”

But while Dorsey has his skeptics about his justification for the reorganization, Wall Street appears to be taking him at his word.

BofA Securities analysts, led by Matt O'Neil, reinstated coverage of Block on Thursday with a Buy rating and a $88 price target. O'Neil said in the client note that the "AI-led transformation positions Block for improved growth trajectory."

"2026 now represents a key execution test as management further catalyzes GP growth and unit economics," he added. "Early indications are promising, and we expect aggressive AI adoption will prove successful."

HSBC analyst Saul Martinez upgraded XYZ shares to Buy from Hold, noting that the company's "reduction of almost half its staff should meaningfully increase its earnings power," with AI creating "higher margins, fewer people."

And Cantor Fitzgerald analyst Ramsey Al-Assal maintained an Overweight rating on XYZ, citing the layoffs as one reason for his bullishness.

"And while the magnitude is a bit startling, the company framed the move as a structural repositioning to embed AI, which we expect to lead to a leaner cost base and more cohesive organization," Al-Assal said.

XYZ shares gained over 3% on Thursday.