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Just For You
Block’s Pivot to Profits and AI Is Turning HeadsSubmitted by Peter Frank. Article Published: 5/20/2026. 
Key Points
- Block delivered strong profit growth in its most recent quarter and exceeded key performance expectations.
- Cash App continued to drive momentum, while Square added stability.
- AI initiatives and restructuring could fuel gains but also introduce risks.
- Special Report: Elon Musk’s $1 Quadrillion AI IPO
Block (NYSE: XYZ), the company behind Square and Cash App, delivered a much stronger quarter than expected, raised full-year guidance, and showed that its aggressive restructuring may already be paying off. By the most visible metrics, the company outperformed in the first three months of the year, with both growth and profitability moving sharply in the right direction.
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In fact, Block is now comfortably hitting the Rule of 40, a closely watched benchmark for growth-stage tech companies. Investors, however, still have reason to be cautious. The stock is pricing in some of its near-term success. The question is how much room is left to run if the company’s pivots continue to pay off. Block Delivers Strong Growth and ProfitabilityBy many measures, Block’s first quarter was outstanding. The company’s gross profit rose 27% year over year (YOY) to $2.91 billion. At the same time, it generated $728 million in adjusted operating income, representing a 25% margin on gross profit. The sum of those two percentage gains exceeds 40, putting Block well beyond the industry “rule.” In other words, the company is growing the revenue it keeps while also improving how efficiently it turns that into income. Overall, revenue for the quarter came in at $6.06 billion, up 5% YOY. And as the numbers showed, that revenue is flowing through to the bottom line. Adjusted diluted earnings per share rose 52% to 85 cents, well ahead of the company’s internal guidance. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a record $1 billion for the quarter. On the surface, these results were solid across the board. Cash App Leads While Square Provides StabilityBlock is powered by two distinct but complementary businesses. On one side is Cash App, the consumer-facing mobile platform that lets millions of Americans send money, invest in stocks, buy Bitcoin, and access basic banking services. On the other side is Square, the merchant-services platform that helps small and mid-sized businesses accept payments, manage inventory, and run payroll. In the first three months of the year, Cash App was the standout. Its gross profit jumped 38% YOY to $1.91 billion, or about two-thirds of the total, fueled by deeper engagement with financial-services products like the Cash App Card and banking features. Square was solid, but it grew more steadily at a 9% pace to $982 million in gross profit. The combination of a growing consumer arm and a stable merchant business is what gives Block its long-term appeal. In light of the results, the company lifted its full-year 2026 targets to 19% gross profit growth, $12.33 billion in total gross profit, $3.34 billion of adjusted operating income, and 62% adjusted earnings per share growth. Embedded in that guidance is Block’s strategic bet on artificial intelligence, which it says will improve personalization, sharpen risk management, and uncover new revenue opportunities. Restructuring and AI Bring New RisksThere is a footnote worth noting, though. On a stricter accounting basis, Block reported a GAAP net loss attributable to stockholders of $309 million and a GAAP operating loss of $172 million. Its unadjusted net loss came to 52 cents per share. That gap between the strong adjusted numbers and the unadjusted losses stemmed primarily from $852 million in restructuring costs and other one-time expenses. More than half of those charges followed a dramatic announcement in February from Jack Dorsey, Block’s chairman, co-founder, and Block Head, as the company calls him. Dorsey said Block would lay off 40% of its workforce as it shifted more work to artificial intelligence. The company later explained in early April that 100% of Block employees were now using AI tools in their work. As part of that quarterly charge, the company also disclosed that it was setting aside $240 million in reserves in light of an ongoing Department of Justice probe into Cash App’s compliance and governance practices. Wall Street Likes the Story But Has ConcernsAll of this news helped the stock bounce. Block’s shares are about 20% higher than a year ago, which was before it joined the S&P 500, but only up around 7% year to date. The impressive quarterly results led to an immediate 10% jump in the stock price, but investors still had concerns about some areas. The $6.06 billion in revenue, though up 5%, missed even higher expectations. The GAAP loss understandably unnerved some investors, and the reserve for a possible DOJ settlement also weighed on sentiment. Analysts who cover Block are broadly optimistic but measured. The consensus rating is a Moderate Buy, with 30 analysts recommending the stock as a Buy, six calling it a Hold, and only one suggesting Sell. The average 12-month price target sits at $84.94, implying about 20% upside from a recent trading price near $70. The most bullish target among the forecasts reaches $100. Competition and Valuation Still MatterGiven its performance, Block has plenty of reasons to attract enthusiasm. But it also faces real risks. The company operates in a fiercely competitive landscape. Cash App faces well-funded rivals, including Venmo by PayPal (NASDAQ: PYPL), as well as Chime (NASDAQ: CHYM) and SoFi (NASDAQ: SOFI) on the neobank side. Square competes against traditional bank-owned merchant services and other merchant platforms, including Clover by Fiserv (NASDAQ: FISV), Toast (NYSE: TOST), and the point-of-sale offering from Shopify (NASDAQ: SHOP). There is also the question of regulatory exposure. Cash App’s Bitcoin trading and its newer financial-services features operate in an environment that could shift unpredictably. And the company’s GAAP losses, however explainable, leave it vulnerable if investor sentiment turns. The valuation itself is not necessarily cheap. Block trades at a meaningful premium to conventional payment processors. That premium is defensible as long as gross profit continues its march upward, but it could leave little margin for error if growth slows. In the meantime, Block is certainly worth a penciled-in spot on the buy list for growth-oriented investors. Just know the risks, watch the numbers, and don’t send all your cash. |
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