Doc's note: AI is going to destroy whole industries for workers, replacing humans and causing mass layoffs. That has been one of the biggest fears folks have about the new technology...
But today, Ethan Goldman – an analyst from our corporate affiliate, Chaikin Analytics – explains why those fears are overblown...
Block (XYZ) slashed 40% of its workforce a couple months ago...
The financial-technology firm had 10,000 employees before the move. And co-founder Jack Dorsey gave a simple explanation...
Artificial intelligence ("AI") allows Block to do more with a smaller team.
Block isn't the first company to make AI-related job cuts in recent months, either...
Delivery leader United Parcel Service (UPS) attributed 48,000 layoffs to AI efficiencies. And online retail giant Amazon (AMZN) has recently cut 30,000 jobs to fuel the AI engine.
On the surface, these moves make it seem like AI is coming for every American's job. There's even a term for this new trend in the AI boom – "AI-washing."
But as I'll show you today, that's far from the case...
These Layoffs Aren't All From AI Productivity Boosts
The truth is simple...
More Americans are working in "nonfarm" industries than ever before.
Just look at this historical chart from the U.S. Bureau of Labor Statistics ("BLS"). It goes all the way back to before World War II...
Notice the steep drop at the start of the COVID-19 pandemic – and the recovery since then. I'll get to why that's important shortly.
Of course, this chart just shows the raw number of U.S. nonfarm employees. And today, the total U.S. population is a lot higher than it was 80 years ago.
But the U.S. is also in a period of historically low unemployment.
The most recent report from the BLS puts the unemployment rate at 4.3%. And as you can see from the following chart, that's a relatively low percentage. Take a look...
You can see a major spike in the unemployment rate when the pandemic broke out.
That's important, folks...
As the pandemic ended, companies raced to hire employees. And apparently, many of these businesses were a little sloppy with this process.
In a post on social media website X after the recent Block layoffs, Dorsey admitted that happened at his company...
Yes we over-hired during [the COVID-19 pandemic] because I incorrectly built 2 separate company structures (Square & CashApp) rather than 1, which we corrected mid-2024.
Even after saying that, Dorsey still tried to spin the moves in a positive light...
But this misses all the complexity we took on through lending, banking, and [buy now, pay later]. And that we're now targeting [$2 million-plus] gross profit per person, [four times] our pre-COVID efficiency, which stayed flat at [about $500,000] from 2019 until 2024. We have and do run an efficient company... better than most.
I mentioned the AI-washing trend above...
Put simply, many companies want to trim their workforce after the pandemic-fueled hiring spree. And the ongoing AI megatrend gives them an excuse to do so while touting the technology.
They're doing that... whether it's the real reason for the layoffs or not.
Of course, tech companies are willing to throw tons of money at this megatrend, too...
Wall Street analysts estimate that companies will spend more than $500 billion on AI efforts in 2026. And Goldman Sachs researchers believe that number could be on the low side.
This trend creates incentives for CEOs to cite AI as a reason for anything...
That's especially true when it sparks a surge in a company's share price.
The Power Gauge Is Skeptical of Dorsey's AI Claims
You see, Block's stock traded near its 52-week low before Dorsey announced the layoffs...
And it surged almost 30% over the next week.
But last September, I warned readers that AI in the workforce isn't always productive. And as I said at the time...
There's a difference between rolling out an AI product that promises big results... and the product actually achieving those results.
As we've said many times here at the Chaikin PowerFeed, it's a similar case with other booms in game-changing technology. Amid the big winners, there will also be plenty of losers.
As investors, we need to carefully analyze every aspect of a company before buying. And executives will often try to paint a positive picture if they've invested billions into an idea.
That's why we rely on the Power Gauge, folks...
Our one-of-a-kind system helps us cut through the "noise" and uncertainty in the market. It breaks down companies using 20 factors. And it points us toward the best opportunities.
The Power Gauge also tells us when to look elsewhere...
For example, the system currently gives Block a "neutral-" overall rating. And the stock has been stuck in "neutral" territory for most of the past year.
So our takeaway is simple...
Dorsey claims that AI is boosting productivity at Block. In turn, he cut 40% of his company's workforce. And investors loved the news.
But the Power Gauge is cautious. And today, it sees better opportunities for our money.
Good investing,
Ethan Goldman
Editor's note: While investors are loving AI companies, there's a crisis that most are ignoring... There are troubling parallels between today and the months leading up to the dot-com crash... And it could be an opportunity if you understand how things will unfold this time. Click here to learn more.