Tech Explained: Here’s a simplified explanation of the latest technology update around Tech Explained: AI washing: When layoffs wear a tech halo in Simple Termsand what it means for users..
In the past three years, artificial intelligence (AI) has become the ultimate buzzword. Business models, strategic plans, and visions for the future all seem more compelling when a little AI is added, along with, increasingly, massive layoffs. In an era when analysts predict that AI will replace tasks and employees, many companies are using the trend to justify large workforce reductions that might otherwise be framed as the result of budget pressures or poor management decisions.
The problem? In many cases, it is little more than a cover for routine layoffs carried out for the same old reasons.
The phenomenon already has a name: AI washing. And in recent weeks, a striking example emerged from Block, the fintech company founded by Jack Dorsey and previously known as Square.
Last week, Dorsey announced that Block would lay off 4,200 employees, roughly 40% of its workforce. The official explanation was AI. According to Dorsey, the company’s growing use of artificial intelligence tools is already allowing tasks to be completed with smaller teams and a flatter organizational structure, a trend he believes will only accelerate.
But analysts say the explanation obscures deeper issues, and that Block’s situation is far from unique.
Dorsey founded Block in 2009 with entrepreneur Jim McKelvey, his former boss. The company’s first product was a small, square-shaped credit-card reader that plugged into the headphone jack of an iPhone, turning a mobile device into a payment terminal, giving the company its original name, Square.
Over time, the company expanded well beyond that initial product. It launched the digital wallet Cash App, acquired the installment-payment service Afterpay, built a Bitcoin wallet, and even purchased the music streaming platform Tidal. For several years, Dorsey simultaneously served as CEO of both Square and Twitter (now X) before Elon Musk acquired the social media platform.
Like many technology companies, Block experienced a major boom during the coronavirus pandemic, which fueled rapid hiring and expansion into new business areas. Its workforce grew from 3,835 employees in 2019 to nearly 13,000 in 2023.
That expansion was driven both by aggressive hiring and large acquisitions, most notably the $29 billion purchase of Afterpay in 2022. These moves significantly increased the company’s cost structure, a notable burden for a firm that reported $24.19 billion in revenue in 2025 but only $1.3 billion in net profit.
Now, critics argue, the bill is coming due.
In a message to employees, which he also posted on X, Dorsey insisted the layoffs were not driven by the company’s financial situation.
“We’re not making this decision because we’re in trouble. Our business is strong,” Dorsey wrote. “Gross profit continues to grow, we continue to serve more and more customers, and profitability is improving. But something has changed. We’re already seeing that the 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. And that’s accelerating rapidly.”
Dorsey said that given these changes, he faced two choices: gradually reduce the workforce over months or years, or act decisively.
“I chose the latter. Repeated rounds of cuts are destructive to morale, to focus, and to the trust that customers and shareholders place in our ability to lead. I’d rather take a hard, clear action now and build from a position we believe in than manage a slow reduction of people toward the same outcome. A smaller company also gives us the space to grow our business the right way, on our own terms, instead of constantly reacting to market pressures.”
The narrative is appealing: Block is healthy, the layoffs are merely a proactive step toward an AI-driven future. But the company’s recent history, and its financial metrics, tell a more complicated story.
According to analysis by Om Malik, Block’s operating income per employee is about $167,000, far below that of key competitors. PayPal generates roughly $269,000 per employee, while Adyen produces $281,000.
The company’s profitability metrics are also weaker. For every dollar of gross profit, Block retains 16 cents, compared with 41 cents at PayPal and 53 cents at Adyen.
“Block is the least efficient of the three by a significant margin,” Malik said.
Critics also point to questionable business decisions, including the acquisition of Tidal and expensive corporate events. In September 2025, Block spent $68.1 million on an employee party featuring performers including Jay-Z and T-Pain.
“These are management issues,” Malik said. “The argument that AI will fix them is a narrative that replaces action.”
In fact, Dorsey himself acknowledged deeper problems behind the layoffs. Just hours after the announcement, he responded to a question on X by admitting:
“Yes we over-hired during covid because I incorrectly built 2 separate company structures (square & cash app) rather than 1, which we corrected mid 2024. But this misses all the complexity we took on through lending, banking, and BNPL. And that we’re now targeting $2M+ gross profit per person, 4x our pre-covid efficiency, which stayed flat at ~$500k from 2019 until 2024. We have and do run an efficient company… better than most.”
The remark amounted to a clear admission that management decisions played a major role in the company’s current situation.
Block is hardly the only company making cuts while citing AI as the catalyst. Major technology firms such as Salesforce and HP have offered similar explanations for significant layoffs.
By contrast, when Amazon conducted layoffs last year, the company avoided attributing the decision to artificial intelligence. CEO Andy Jassy said the move was driven neither by financial considerations nor by AI.
Still, the market’s reaction to Dorsey’s announcement suggests that the strategy may be effective. Block’s stock rose 24% following the layoffs, even though the company’s shares have fallen roughly 72% over the past five years.
Artificial intelligence is indeed a transformative technology with the potential to reshape industries and improve productivity. But like any powerful trend, it can also become a convenient cover story.
Many companies will inevitably face painful layoffs and restructuring in the years ahead. In most cases, however, those decisions will stem from strategic missteps made long before AI entered the conversation.
Yet admitting that reality is uncomfortable. Blaming the machines, by contrast, is far easier, and far more appealing to investors.