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Jack Dorsey has been many things in his career, including social media pioneer and crypto advocate. Now he’s the grim reaper of AI. Dorsey on Thursday revealed he will lay off 40% of the employees, or about 4,000 people, at his fintech firm, Block. The reason? AI. “The core thesis is simple,” he explained in a shareholder letter. “Intelligence tools have changed what it means to build and run a company.”
Now, Dorsey, a former CEO of Twitter, has never been known for his management skills. It’s possible Block is overstaffed and Dorsey is using AI as an excuse to cut. But even if that’s true, the reaction is what will matter. Dorsey’s statement will confirm the worst fears of AI’s critics. It’s sure to fuel the growing political debate about the benefits and costs of AI in ways that might rebound on the tech sector, particularly when it comes to getting permission to build new data centers. After all, communities across the country are already rebelling against proposed data centers, unhappy about rising power costs and the environmental impact. The best way to destroy public support for AI is for companies to use it primarily to slash jobs. Dorsey says that’s coming: “Within the next year, I believe the majority of companies will reach the same conclusion and make similar structural changes.”
Wall Street’s reaction to Dorsey’s move was striking. Block’s stock, which had been in a slump in recent months, soared 24% in after-hours trading. Investors seem to like the profit implications of a company cutting nearly half the staff. But that highlights the schizophrenia on Wall Street right now regarding AI. Also on Thursday, Nvidia shares fell 5.5%, the day after the AI chip designer reported another gangbusters quarter and projected even stronger growth in the April quarter. Nvidia stock has been stalled at the same level for about five months now, even though it is currently the main beneficiary of the AI boom that is allowing Block to cut staff.
How to explain it? While some market watchersattributed the Nvidia sell-off to options-related activity rather than anything fundamental, Nvidia shares sold off after its last two earnings as well. That makes it more believable that investors are simply wary of betting that Nvidia’s incredible revenue expansion can continue. As Morgan Stanley said in a report on Thursday, some worry that the enormous amount big cloud firms are spending on chips for data centers “continues to cause questions about sustainability.” Those companies have plenty of money and ability to borrow, as we pointed out in this piece today, so the main reason anyone would worry about sustainability is if they’re skeptical about demand from businesses and consumers for AI services. Demand might slacken if people don’t think AI works or if it’s too expensive.
But Dorsey’s announcement suggests that the opposite is going to happen. Of course, how many consumers will be able to afford to pay for AI if half of them lose their jobs is a question that remains unresolved.
Netflix Makes Right Call
Hallelujah. Netflix dropped out of the bidding for Warner Bros. Discovery Thursday afternoon, shortly after WBD announced it had decided that the latest offer from the Ellison family’s Paramount Skydance was superior to an existing deal WBD had with Netflix.
WBD gave Netflix four days to respond but the streaming giant didn’t need to wait. It said the price required to match Paramount meant the “deal is no longer financially attractive.”
Netflix investors applauded the move, sending Netflix stock up 10% in after hours trading. Over the past few months, Netflix shares had dropped 39% amid growing concerns about Netflix’s $72 billion agreement to buy WBD’s streaming operations and film studio. The deal would have required Netflix to take on more than $50 billion in debt, assuming it was approved. And to get there, Netflix faced a tough regulatory review and opposition in Hollywood.
There’s no guarantee that Paramount will win regulatory approval for WBD, but the close ties between the Ellison family and President Donald Trump give it a good shot. If Paramount does succeed, it faces an unenviable task integrating WBD. Paramount is paying top dollar for a business in decline. WBD reported on Thursday that revenue fell 7% in the fourth quarter, while its earnings before interest, taxes, depreciation and amortization dropped 20%.
In Other News
• The Office of the Comptroller of the Currency, which is set to regulate stablecoin issuers such as Circle, Paxos and Stripe’s Bridge, has proposed rules that would ban crypto platforms from passing along interest from stablecoin issuers to users who hold stablecoins. If the proposal holds up, it would be a big loss for the crypto industry, which is expected to push back.
• CoreWeave doubled sales in the fourth quarter, but the company reported bigger than expected losses, sending shares more than 8% lower in after-hours trading.
Today on The Information’s TITV
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