Block stock jumps as Jack Dorsey's AI bet shows signs of paying off

Eight months after Jack Dorsey made one of corporate America's boldest bets on shrinking its workforce to prepare for the age of artificial intelligence, investors are finding more reasons to buy into the Silicon Valley billionaire's pivot.

Shares of Dorsey's Block ( XYZ ), the payments company behind Cash App and merchant processor Square, jumped 15% in Wednesday morning trading after it reported better-than-expected third quarter earnings and raised its gross profit outlook for next year.

If the move lasts through Wednesday trading, it will mark the stock's best one-day performance since investors embraced co-founder and CEO Dorsey's somewhat controversial decision in February to let go of 40% of Block's workforce.

The company gave more evidence of the financial benefits from its sweeping overhaul Tuesday afternoon. Gross profit at Block rose 22% in the third quarter from a year ago to $3.2 billion, while adjusted operating income surged 92% to $923 million as Block benefited from lower personnel costs.

Block's sweeping restructuring move this year has raised questions over whether AI advancements were genuinely allowing the payments company to operate with close to half as many employees or whether enthusiasm for the technology provided cover for the company to initiate a sweeping cost-cutting exercise after years of over hiring.

The Oakland, California based company's third quarter results delivered some evidence of its savings from a smaller workforce. Adjusted product development expenses fell 12% from a year ago. The company also said AI is taking over a growing number of routine software tasks but it didn't disclose how much of its improved operating profits can be tied directly to the technology.

Block's core business also showed some momentum in the quarter. Cash App reached 60 million monthly transacting users in September after hovering between 58 million to 59 million for the past four quarters. Block's merchant processer unit, Square, also reported gross payment volume rose by 14% year over year compared to 13% in the previous quarter.

The company projected total gross profit next year to be $14.52 billion, or roughly $110 million ahead of Wall Street's expectations, according to BTIG.

"We believe we've meaningfully crossed the chasm of transforming our company from one that creates traditional financial products into one that streams intelligence as people need it," Dorsey wrote in Block's third quarter shareholder letter.

Executives also provided more details on Block's artificial intelligence strategy, with Dorsey highlighting how Block plans to turn some of the AI tools it has developed into new sources of revenue.