Jack Dorsey, CEO of Block, has made one of the most explicit cases yet that artificial intelligence is fundamentally altering the landscape of corporate employment. In a move that has sent shockwaves through the tech and financial sectors, Dorsey announced Thursday that his company is cutting 40% of its workforce, reducing the headcount from over 10,000 to just under 6,000 employees. This decision, framed as a direct response to the rise of AI tools, marks a significant turning point in the ongoing debate over the impact of automation on jobs.

AI as the Catalyst for Major Restructuring

Dorsey made his stance clear during Block’s earnings call, stating that “intelligence tools” have fundamentally changed the way companies operate. The CEO emphasized that the decision was not made out of financial distress but as a strategic response to the evolving capabilities of AI. Block’s financial performance, he noted, remains strong, with gross profit continuing to grow and profitability improving.

Block’s stock surged nearly 25% in after-hours trading following the announcement, though gains were slightly tempered on Friday, closing up 17%. The company also provided a strong earnings forecast for the year, surpassing market expectations despite the recent quarter’s results aligning with forecasts.

Morgan Stanley upgraded Block to an “overweight” rating, citing the potential for increased profitability through AI-driven efficiencies. Goldman Sachs raised its price target, noting that the workforce reductions could elevate Block to near the top in fintech productivity. Wells Fargo maintained its “buy” rating, calling the quarter “chock full of positive surprise.”

Restructuring Costs and Strategic Cuts

Block expects to take a $450 million to $500 million hit in restructuring costs, with the majority of the cuts expected to be completed by mid-2026. Dorsey explained that he opted for an immediate, decisive approach rather than phasing the cuts over time, citing the potential for repeated reductions to harm morale and focus.

“Repeated rounds of cuts are destructive to morale, to focus, and to the trust that customers and shareholders place in our ability to lead,” Dorsey wrote on X. The move surpasses recent AI-linked layoffs at companies such as Pinterest, CrowdStrike, and Chegg, and comes as Wall Street grapples with the implications of AI on employment.

Block’s decision also aligns with a viral thought experiment published earlier this week by Citrini Research, titled “The 2028 Global Intelligence Crisis.” The report posits a hypothetical scenario in which AI-driven layoffs could trigger a feedback loop of white-collar job displacement, reduced consumer spending, and systemic financial damage. While some critics, including those from Citadel Securities, have raised concerns, the scenario finds support in Block’s case study.

Goldman Sachs noted that the cuts are concentrated in engineering roles rather than revenue-generating or regulatory positions, suggesting that Block is relying on its in-house AI platform, Goose, to replace that work. The firm also pointed out that Block is now targeting over $2 million in gross profit per employee, roughly quadruple the figure before the pandemic.

Broader Industry Shift Toward Efficiency

Autodesk CEO Andrew Anagnost acknowledged the growing focus on efficiency in the tech industry, stating that revenue per employee is a key metric for management. He told CNBC’s “Squawk on the Street” that the company is “absolutely looking at efficiency moving forward” and expects to hire fewer people as a result of AI advancements.

Dorsey’s announcement has not been universally welcomed, however. Critics have pointed out that Block expanded from about 4,000 employees in 2019 to nearly 13,000 during the pandemic, a move that some have called excessive. Dorsey acknowledged this on X, admitting it was a mistake he corrected in mid-2024. Goldman Sachs noted that the current headcount effectively returns Block to its 2020 levels.

Dorsey’s history of aggressive hiring also includes his tenure at Twitter, where he led a hiring spree before Elon Musk took over and slashed roughly 80% of the payroll within six months in 2022.

Analysts at Piper Sandler reiterated their “underweight” rating on Block, citing increased transaction losses, which rose to 18% of gross profit in the recent quarter, up from 14% in the prior quarter and 11% a year earlier. The analysts expressed skepticism about Block’s long-term growth potential, despite the immediate positive reaction from investors.

As Block moves forward, the broader implications of AI-driven efficiency will continue to shape corporate strategy across industries. With the debate over AI and employment intensifying, Dorsey’s decision may serve as a bellwether for how companies will handle this evolving landscape.