Jack Dorsey's Block lays off 4,000 and blames AI. Is it just a convenient excuse?

It might be the largest single-round percentage jobs cut in S&P 500 history. Block $SQ, the fintech company founded by Jack Dorsey, said Thursday that it will lay off about 40% of its workforce. That's more than 4,000 people.

In a note to staff, which Dorsey also shared to X $TWTR, he framed the move as a pivot to AI. “We're not making this decision because we're in trouble," he wrote. “Our business is strong. Gross profit continues to grow, we continue to serve more and more customers, and profitability is improving. but something has changed.”

Here's what to know.

Dorsey points to AI

The culprit, Dorsey said, was a much more fundamental shift in the business world: "Intelligence tools we're creating and using, paired with smaller and flatter teams, are enabling a new way of working which fundamentally changes what it means to build and run a company," he said.

Departing employees will receive “your salary for 20 weeks + 1 week per year of tenure, equity vested through the end of May, 6 months of health care, your corporate devices, and $5,000 to put toward whatever you need to help you in this transition,” Dorsey said.

Dorsey added that he wanted to make one big cut, rather than a series of smaller ones. "Repeated rounds of cuts are destructive to morale, to focus, and to the trust that customers and shareholders place in our ability to lead," he wrote. "I'd rather take a hard, clear action now and build from a position we believe in."

But critics cite a history of corporate bloat

Wall Street appeared to cheer the announcement, with Block shares jumping 20% after hours. Other tech companies, including Salesforce $CRM and Workday $WDAY, have seen similar short-term price jumps after announcing layoffs and citing AI-focused rationales in recent months.

But critics say the AI explanation doesn’t hold water — not least because just last year, Dorsey helped organize a $68 million party for Block employees, featuring performances from Jay-Z, Soulja Boy, and T-Pain that caused Block’s SG&A to spike. The 40% workforce reduction comes just five months after the party.

An even bigger issue than a one-off party? Critics pointed to how Block tripled its headcount between 2019 and 2022. Dorsey has previously acknowledged overbuilding, including two separate organizational structures for Square and Cash App rather than one.

Detractors cited this history of what they see as corporate bloat, and argued Dorsey is merely using AI as an excuse. "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," Wharton professor Ethan Mollick said on LinkedIn. "I think it is worth taking the justification with a grain of salt."

Whether AI is genuinely replacing large swaths of white-collar work, and tech companies like Block are "the canary in the coal mine" as some have warned, the concerning trend for white-collar employees is nevertheless becoming clear. Wall Street rewards CEOs who make steep cuts and attribute those cuts to AI.

That could embolden other management teams to follow — regardless of whether those executives' claims are legit or not.