Block Inc. (NYSE:XYZ) posted one of its strongest quarters in years on August 5, then watched its shares fall roughly 6% the next day. Adjusted EPS came in at $1.02, well ahead of the $0.87 Wall Street expected, and the company raised its full-year guidance across the board. Investors, it turns out, cared more about one soft number than a pile of strong ones.
Bull Case: A Cost Structure Built For Leverage
The headline story is what AI has done to Block's expenses. Back in February, the company cut its workforce by 40%, arguing that AI tools were making engineers more productive and reducing headcount needs. That bet appears to be paying off: code changes per engineer have climbed 150% since the start of the year, and management frames the resulting efficiency as durable rather than a one-time trim. Second quarter gross profit rose 25% year-over-year, with adjusted operating income margin hitting an all-time high of 27%.
The rest of the business backs up the efficiency story with actual growth. Square's US gross payment volume accelerated to its fastest pace since 2023, helped by more than 200 active ISO partners driving over 150% quarterly growth in new sellers from that channel. Cash App gross profit grew 31%, with consumer lending originations up 59% and commerce enablement volume up 17%. New launches like Cash App Tags, Cash App Mobile, and the general availability of Afterpay Pre-Purchase on Cash App Card add fresh reasons for users to stay engaged, and management is…
