Jack Dorsey made the loudest case yet AI is already replacing jobs

The tech industry has spent the last few years debating whether AI will eliminate jobs on a large scale or use it as an excuse for companies to engage in mass layoffs.

To obstruct He planted his flag firmly.

Jack Dorsey, co-founder and CEO of Square parent company, announced Thursday that his company will cut nearly 40% of its workforce, reducing the number of employees from 10,000 to just under 6,000. He made clear why, telling investors on Block’s earnings call that “intelligence tools” have fundamentally changed what it means to start and run a company.

Dorsey predicted that the rest of America would follow suit and that most companies would reach the same conclusion within a year.

“Our business is strong,” Dorsey wrote Publish on X. “Gross profit continues to increase, we continue to serve more and more customers, and profitability is increasing. But something has changed.”

Investors quickly embraced that message, and the stock rose nearly 25% in extended trading on Thursday, although gains faded slightly on Friday, with shares closing up 17%.

Block also offered an earnings forecast for the year that was ahead of estimates, although last quarter’s results were largely in line with expectations.

Morgan Stanley analysts upgraded Block to overweight and wrote that AI-driven efficiency should deliver increased profitability. Analysts at Goldman Sachs raised their price targets, saying the cuts would lift Block from the mid-table to near the top of fintech workforce productivity. Wells Fargo maintained its buy rating, calling the quarter “full of positive surprises.”

Block expects to take a hit of $450 million to $500 million for restructuring costs, largely front-loaded in the first quarter, with the bulk of the cuts to be made by mid-year. Dorsey said he chose to take action all at once rather than phasing in the cuts.

“Repeated disruptions undermine morale, focus, and customer and shareholder confidence in our ability to lead,” he wrote.

This move overshadows recent AI-related outages on Pinterest, CrowdStrike And CheggThe debate over artificial intelligence and jobs comes as it consumes Wall Street.

Earlier this week Citrini Research It was published A thought experiment titled “Global Intelligence Crisis of 2028” went viral; A hypothetical memo warning two years ahead that AI-driven layoffs could trigger a negative feedback loop of white-collar layoffs, consumer spending collapses, and systemic financial damage.

The report attracted its share of critics, especially Kale SecuritiesThe argument that AI-based headcount reductions will occur first at strong, profitable software companies has a real-world case study.

Block says he’s currently aiming for north of $2 million in gross profit per capita; This is roughly four times the level this figure was at before Covid. Goldman noted that the cuts are concentrated in engineering roles rather than revenue-generating or regulatory positions; This is consistent with Block leaning on in-house AI platform Goose to replace this business.

Autodesk Revenue per employee is the decisive productivity metric for management teams, CEO Andrew Anagnost said Friday.

“We’re definitely looking at efficiency going forward,” Anagnost told CNBC’s “Squawk on the Street.” “We will be hiring fewer people at Autodesk for efficiency reasons. We are definitely seeing engineering efficiencies through AI.”

Not everyone believes Dorsey’s explanation, though.

Block grew from about 4,000 employees in 2019 to about 13,000 during the pandemic; this was voiced by skeptics on social media after the cuts were announced. dorsey Admitted that X was over-recruitedDescribing this as a mistake, he fixed it in mid-2024. The reduction effectively returns Block’s headcount to 2020 levels, Goldman said.

Dorsey had previously gone on a hiring spree while running Twitter. Elon Musk slashed nearly 80% of Twitter’s payroll within six months of acquiring the company, which will later be renamed X in 2022.

Analysts at Piper Sandler reiterated their underweight rating on Block after Thursday’s report, highlighting that the company’s trading losses widened to 18% of gross profit in the period, from 14% in the previous quarter and 11% a year earlier.

“As a result, while right-sizing XYZ has been well received by investors and will improve ST profitability, this appears to be an extreme step and we remain skeptical about XYZ’s long-term growth profile,” the analysts wrote.

WRISTWATCH: Block shares up more than 20%, announces plan to cut workforce by nearly half