Block's AI-Native Cost Cuts Are Starting To Show Up In The Numbers

Fund managers say Cash App's shift to lending and a leaner cost base are reshaping the investment case for the payments group behind Square

20 Jul 2026 · 7 min read

Fund managers covering Block, the payments group behind Square and Cash App, spent much of July 2026 talking about a deal that has nothing directly to do with the company. Pendal Group told investors that speculation around a takeover of PayPal by Stripe and Advent, reportedly at US$60.50 a share, has investors drawing favourable read-throughs for scaled payment platforms and global two-sided networks, with Block itself even mentioned as a potential participant. The manager's view was that the rumoured deal reinforces the scarcity value of established payments infrastructure, and that network effects and embedded merchant relationships may be worth materially more than public markets currently imply.

That framing matters because it lands on top of a run of operating momentum that several managers say has been building since Block's March quarter result. Equity Trustees Asset Management noted in its June 2026 quarterly report that Block produced a strong result in May, beating expectations across gross payment volumes, revenue and profit, with both the Cash App and Square payment devices performing strongly. The manager pointed to upgraded guidance, continued share gains from peers, and what it called a resilient US macro backdrop supporting consumption trends, alongside a strong balance sheet and cashflow position.

A leaner, AI-native cost base

The improving numbers follow a period in which several managers framed Block's story less around growth and more around discipline. In its December 2025 monthly report, ECP Asset Management laid out a detailed thesis built on two complementary ecosystems, Square for merchants and Cash App evolving into a consumer bank, and argued the business was re-accelerating under Jack Dorsey's renewed leadership following a period of consolidation. The manager linked Block's roughly 40 per cent workforce reduction directly to this shift, describing it as an example of a broader theme it calls Productivity Reinvestment, and argued that lean, AI-empowered operators are likely to outperform incumbents burdened by legacy labour costs.

Block's aggressive shift toward efficiency, evidenced by their 40% workforce reduction, aligns with the Productivity Reinvestment theme we explored in Part III. In a cooling economy, we believe lean, AI-empowered operators will outperform legacy incumbents burdened by traditional labor costs.

— ECP Asset Management, Monthly Report, December 2025

Quest Asset Partners took a similar view in April 2026, noting that the headcount reduction came while both the Cash App peer-to-peer banking business and the Square point-of-sale business were accelerating across most key metrics, rather than in response to a weakening top line. Not every manager was convinced the AI framing tells the whole story. TMS Capital, commenting in an April 2026 article, said there was some debate as to whether the cuts were simply a workforce reduction dressed up in AI language, comparable to the way greenwashing became a catch-all criticism a few years earlier, while still agreeing that operating margins across these kinds of businesses are likely to expand meaningfully if the underlying operations hold up.

Hyperion Asset Management's May 2026 monthly report gave the clearest read on how that efficiency drive is showing up in the numbers. It reported first-quarter revenue growth of 24 per cent year on year excluding Bitcoin, to US$4.3 billion, gross profit growth of 27 per cent to US$2.9 billion, and adjusted operating income growth of 56 per cent to US$728 million, alongside a rule-of-40 score of 42. The manager highlighted that production code changes per engineer had risen 2.5 times between January and April 2026 as AI tools were deployed across the organisation, and noted the company had upgraded its full-year outlook to expect 19 per cent gross-profit growth and adjusted EPS of US$3.85.

Cash App's pivot toward lending

Where managers differ is on what drives the next leg of growth. Firetrail Investments, also reporting on the May quarter, said Block's guidance for 19 per cent gross profit growth and 60 per cent earnings growth in 2026 looked compelling against a valuation of under 15 times earnings on a stock-compensation-adjusted basis, and pointed specifically to the company's shift toward what it called proactive AI, watching for patterns and identifying risks and opportunities, rather than the more common reactive model where a human asks and AI answers.

Pendal Group, by contrast, framed the same quarter more cautiously in its May 2026 newsletter. It described a beat-and-raise result driven largely by Cash App's borrow and lending products, with the core Cash App Card business now maturing to roughly 10 per cent growth and monthly active user penetration very mature. Its read was that growth is going to be largely driven by lending from here, which it argued does not lend itself to multiple expansion, a factor it believes explains why the stock has been range-trading for years despite a string of positive updates.

Growth is going to be largely driven by lending from here which doesn't lend itself to multiple expansion.

— Pendal Group, Newsletter, May 2026

ECP Asset Management took the more constructive side of that debate in a May 2026 article, calling Block underappreciated and a top position in the fund, and pointing to sustained cost discipline and AI-enhanced productivity tools supporting margin expansion across both Cash App and Square. Yarra Capital Management has stayed overweight through the period, repeatedly flagging what it calls an appealing cash flow yield of around 7.4 per cent for a company it says is growing earnings above 30 per cent, a view it held through both the January 2026 sell-off in payments names and April 2026's rebound.

Not every manager has stayed the course. Oracle Advisory Group exited its position in March 2026, and Perennial Partners flagged Block as a detractor in January 2026 even while stating it saw significant upside in the stock. The wide range of views, from Pendal's caution on lending economics to ECP and Firetrail's conviction in the AI-led margin story, reflects a company whose earnings mix is shifting quickly enough that managers are still working out how to value it.

What managers are watching next

Heading into the back half of 2026, the near-term questions for managers are less about whether Block's cost base has genuinely improved, most agree the recent quarters show it has, and more about how durable the Cash App lending pivot proves to be, and whether the PayPal takeover speculation ends up reshaping how the market prices scaled payments platforms more broadly. Equity Trustees' June update suggests the operating momentum from the March quarter has carried through, while Pendal's July commentary shows the strategic narrative around consolidation in payments is now actively feeding into how Block itself is being discussed.