Jack Dorsey slashed 40 percent of his workforce and said most companies would follow within a year. But former employees, analysts, and the company's own history tell a more complicated story.

On February 26, Block announced it was cutting more than 4,000 employees, reducing its workforce from over 10,000 to just under 6,000. The stock surged 24 percent in after-hours trading. Investors loved it. The narrative was clean: AI makes companies leaner, leaner companies make more money.

Jack Dorsey framed the decision as forward-looking, not reactive. In a shareholder letter, he wrote that intelligence tools paired with smaller, flatter teams were enabling a fundamentally new way of working. On an analyst call, he said something had changed in December when AI models became an order of magnitude more capable. He predicted most companies would reach the same conclusion within a year.

The messaging was deliberate and specific. Dorsey told analysts that Block was targeting more than $2 million in gross profit per employee, compared with $500,000 between 2019 and 2024. He said the company would be built with "intelligence at the core of everything we do." He chose a single large cut over repeated rounds, arguing that serial layoffs are destructive to morale.

Block has been building its own internal AI tool called Goose, and Dorsey pointed to rapid progress in model capabilities as the catalyst. The framing positioned the cuts not as cost reduction but as structural transformation: fewer people doing more, enabled by AI that compounds in capability every week.

On X, Dorsey guaranteed the cuts were not happening because the business was struggling. "Our business is strong. Gross profit continues to grow."

Not everyone bought it.

Bloomberg used the term "AI-washing" in its headline, questioning whether the technology narrative was masking conventional cost-cutting. Dan Dolev, an analyst at Mizuho Americas, told the Wall Street Journal that the vast majority of cuts were probably not AI-related. Former Block employee Jason Karsh was more direct, calling it "organizational bloat wearing an AI costume."

Aaron Zamost, who led communications at Square from 2015 to 2020, wrote in the New York Times that nobody knows the real answer, not even Block itself. He argued that Dorsey has a tendency to identify patterns early and act on conviction, sometimes correctly and sometimes not.The numbers support the scepticism. Block nearly tripled its headcount between 2019 and 2023, continuing to hire for a full year longer than peers like Shopify and Coinbase. Dorsey himself admitted on X that he "over-hired during covid" and built two separate company structures for Square and Cash App rather than one. An Oxford Economics report released in January found that many layoffs described as AI-related were actually corrections from pandemic-era over-hiring.

A Forrester Research report from last month cast further doubt, questioning how real AI productivity gains are across the industry versus the likelihood that layoffs are financially motivated.

The debate has focused on AI and jobs in the abstract. What has received far less attention is what it actually means to run a payments business at half the headcount.

Block operates merchant acquiring through Square, peer-to-peer payments and banking through Cash App, and buy-now-pay-later through Afterpay. These are not simple software products. They involve PCI compliance, settlement and reconciliation, dispute resolution, regulatory reporting, anti-money laundering processes, and real-time fraud monitoring across multiple jurisdictions.

AI can genuinely automate parts of this stack. Customer support chatbots, transaction monitoring, and anomaly detection are well-established use cases. Dorsey's internal AI tool Goose appears to be focused primarily on engineering productivity, helping developers write and review code faster. That is a legitimate efficiency gain.

But the compliance-heavy, relationship-dependent work that sits at the heart of payments processing does not compress as neatly as a shareholder letter might suggest. Merchant onboarding requires human judgment about risk. Regulatory reporting across jurisdictions requires expertise that models cannot yet reliably provide. Dispute resolution, particularly at the scale Cash App and Afterpay operate, involves nuance that automated systems routinely get wrong. And the consequences of getting compliance wrong in payments are not a bad customer experience. They are fines, licence revocations, and criminal liability.

The payments companies that have deployed AI most effectively have done so by augmenting human decision-making, not replacing it. Mastercard and Visa use AI to flag suspicious transactions for human review, not to autonomously approve or reject them. The distinction matters.

As Josh Bersin noted in his analysis, the real return on AI comes from re-engineering processes, not displacing jobs one for one. His research across 70 companies found that most organisations treating AI as a tool to increase individual productivity did not see meaningful job reduction. It takes a fundamental redesign of how work flows through an organisation to deliver the kind of transformation Dorsey is describing.

ServiceNow CEO Bill McDermott offered a useful counterpoint, arguing that when intelligence is abundant, the scarce resource is everything surrounding it: enterprise context, governance, and execution infrastructure. That framing suggests the headcount question is more nuanced than simply replacing humans with models.

Dorsey's prediction that most companies will follow within a year deserves scrutiny.

The Citrini Research post that went viral the same week imagined a 2028 scenario where AI-driven unemployment tops 10 percent and the S&P 500 collapses. It was speculative, but it captured genuine anxiety. Economist Anton Korinek told Fortune that Block's move may mark the beginning of a trend where competitive forces push others to follow, whether the AI justification holds up or not.

For payments and fintech companies specifically, the lesson is more targeted. AI will reshape operations. It already is. But the companies that slash headcount and call it transformation without redesigning their processes will find that compliance gaps, operational failures, and customer trust erosion move faster than any model can compensate for.

Block's stock went up 24 percent. The market rewarded the announcement. Whether the execution delivers is a question that will take quarters, not days, to answer.