Over the past two years, Silicon Valley has wrestled with a pressing question: Will artificial intelligence truly replace workers at scale, or has it simply become a convenient narrative for companies looking to justify sweeping layoffs?

Block has now taken a definitive stance.

On Thursday, Jack Dorsey, co-founder and chief executive of Block, the parent company of Square, announced that the company will reduce its workforce by roughly 40 percent. Headcount will fall from more than 10,000 employees to just under 6,000. Dorsey made it clear during the company’s earnings call that this was not a routine cost-cutting exercise. According to him, advances in what he described as “intelligence tools” have fundamentally reshaped how companies can be built and operated.

Dorsey went further, suggesting that many corporations across the United States are likely to reach similar conclusions within the next year. In a message posted on X, he emphasized that Block’s underlying business performance remains solid. Gross profit continues to rise, customer numbers are growing, and profitability is improving. However, he argued that the operating environment has changed in a structural way, driven largely by AI capabilities.

The market responded immediately. Shares of Block surged about 25 percent in extended trading following the announcement, although gains moderated slightly the next day, with the stock closing up around 17 percent. Investors appeared to embrace both the strategic shift and the company’s updated financial outlook.

Block issued a full-year earnings forecast that exceeded Wall Street expectations, even though quarterly results were broadly in line with analyst estimates. Several major financial institutions responded positively. Morgan Stanley upgraded the stock to overweight, citing AI-driven operational improvements as a pathway to higher profitability. Goldman Sachs raised its price target, noting that the workforce reduction could move Block from the middle tier to near the top among fintech companies in terms of productivity per employee. Wells Fargo maintained its buy rating and described the quarter as filled with encouraging developments.

The restructuring will not come without cost. Block expects to incur between $450 million and $500 million in charges related to the layoffs, with most of the expenses recognized in the first quarter. The majority of workforce reductions are expected to be completed by midyear. Dorsey explained that he opted for a single, comprehensive round of cuts rather than multiple smaller rounds over time.

He argued that repeated layoffs can damage employee morale, disrupt focus, and erode the trust of both customers and shareholders. In his view, a decisive reset is less harmful than prolonged uncertainty.

Compared with recent AI-related workforce reductions at companies such as Pinterest, CrowdStrike, and Chegg, Block’s move is far more dramatic. The decision also arrives amid growing debate on Wall Street about how artificial intelligence will reshape white-collar employment.

Earlier this week, Citrini Research published a widely discussed thought experiment titled “The 2028 Global Intelligence Crisis.” The report imagined a near-future scenario in which AI-driven layoffs spiral into a negative economic cycle, with displaced white-collar workers reducing spending, weakening demand, and creating broader financial instability. While the paper attracted significant attention and criticism, including from Citadel Securities, it highlighted a growing concern: that job reductions fueled by AI would first emerge at profitable, high-performing software firms.

Block may now serve as a real-world example of that thesis.

The company has set an ambitious internal benchmark, targeting more than $2 million in gross profit per employee. That figure is roughly four times higher than its pre-pandemic level. Goldman Sachs analysts observed that the cuts appear to be concentrated primarily in engineering roles rather than revenue-generating or compliance-related positions. This aligns with Block’s increasing reliance on its internal AI platform, known as Goose, to automate and augment engineering tasks.

The emphasis on productivity per employee is not unique to Block. Autodesk CEO Andrew Anagnost said in a recent television interview that revenue per employee has become a defining metric for management teams. He acknowledged that Autodesk expects to hire fewer people going forward because AI is improving efficiency, particularly in engineering functions.

Still, not everyone is convinced by Dorsey’s framing.

During the pandemic, Block’s workforce expanded rapidly, growing from roughly 4,000 employees in 2019 to nearly 13,000 at its peak. Critics on social media pointed out that the company’s current reduction largely reverses that hiring surge. Dorsey responded by acknowledging that the company had overhired and described it as a mistake that he began addressing in mid-2024. Goldman Sachs analysts noted that the new headcount effectively returns Block to staffing levels seen around 2020.

Dorsey’s history also factors into the skepticism. During his earlier tenure leading Twitter, the company expanded significantly. After Elon Musk acquired Twitter in 2022 and rebranded it as X, he eliminated approximately 80 percent of the workforce within six months. That episode demonstrated how dramatically headcount can be reduced in the tech sector, though the long-term operational implications remain debated.

Not all analysts are fully aligned with the bullish narrative surrounding Block’s restructuring. Piper Sandler reiterated its underweight rating following the earnings report. The firm pointed to a rise in transaction losses, which increased to 18 percent of gross profit in the most recent quarter, up from 14 percent in the prior quarter and 11 percent a year earlier. From their perspective, while the downsizing may enhance short-term profitability, it raises questions about the company’s long-term growth prospects.

In essence, Block’s decision underscores a turning point in the broader AI conversation. Rather than treating artificial intelligence as an experimental productivity tool layered onto existing structures, the company is restructuring its organization around the assumption that AI can permanently replace significant portions of human labor, especially in technical roles.

Whether this marks the beginning of a widespread corporate transformation or proves to be an aggressive outlier strategy remains to be seen. What is clear is that the debate over AI and employment has shifted from theory to practice. For investors, executives, and employees across the tech sector, Block’s move may serve as both a test case and a signal of what could lie ahead.