Block's AI-Driven Growth: Earnings Miss and Long-Term Upside Potential

Block Inc. (XYZ) fell short of Wall Street expectations in Q3 2025, reporting earnings per share (EPS) of $0.54, which was 14.3% below the anticipated $0.63. Revenue also came in lower than expected at $6.11 billion, a 3.5% shortfall against the $6.33 billion forecast. According to the earnings call transcript, this miss led to a 3.69% decline in Block's stock price following the earnings release. Despite the top-line disappointment, the company delivered robust gross profit growth, rising 18% year-over-year to $2.66 billion.

The gross profit increase was driven by strong performance in key segments. Cash App contributed significantly with an 18% YoY gross profit surge, specifically a 24% rise in its gross profit component. Square also showed resilience, posting 9% growth in gross profit (or 12% growth in gross payment volume, GPV). Building on this foundation, Block raised its full-year gross profit guidance to $10.243 billion. According to financial analysis, this guidance reflects management's confidence in the company's trajectory.

CEO Jack Dorsey emphasized the strategic pivot towards artificial intelligence as a critical growth engine. The company is advancing projects like Goose, aimed at automating underwriting processes, and Square AI, described as a virtual COO/CFO tool designed to enhance seller operations and financial processes. These initiatives are positioned to boost operational efficiency, reduce costs, and accelerate product development, potentially strengthening Block's competitive edge long-term. However, the lack of disclosed metrics on AI cost savings, efficiency gains, or hardware adoption rates leaves some questions about the near-term financial impact unanswered.

The $5 billion increase in the stock repurchase program signaled management's underlying confidence in the company's trajectory and liquidity position, even as execution risks surrounding new AI investments persist. This confidence comes amidst rising costs; transaction and risk loss expenses jumped 89% YoY, attributed to expanded lending activities, highlighting the challenge of balancing aggressive growth initiatives against cost control. While the AI strategy promises significant upside, investors remain focused on whether these initiatives can quickly translate into tangible earnings improvements to offset current pressures.

Cash App and Square: Penetration and Spending Trends

Cash App's user base remains robust, with 57 million monthly active users in the U.S. generating $16.2 billion in revenue in 2024. Bitcoin transactions accounted for 62% of that revenue, underscoring the platform's crypto-centric model. Hardware penetration through the Cash Card reached 42% of users by 2024. This card usage correlates with measurable spending shifts: Cardholders boosted social media purchases by 13% and local spending by 25% in 2025, reflecting deeper engagement within specific consumer segments.

Square, Block's business arm, demonstrated solid momentum in Q3 2025, reporting 9% year-over-year growth. This expansion is increasingly powered by AI tools automating seller operations and financial processes. Block's integrated suite, including Square, Cash App, and Afterpay, processed a record 124 million transactions during Black Friday and Cyber Monday 2025, highlighting the scale of its ecosystem. AI initiatives, such as automation via the Goose project and AI/ML-based underwriting for Cash App Borrow, are key to driving this growth while aiming to enhance operational efficiency and customer engagement. Full-year gross profit guidance was raised to $10.243 billion, reflecting confidence in these strategies.

However, the ecosystem faces significant friction. Transaction and risk loss expenses surged 89% year-over-year in Q3 2025 due to lending expansion, a cost that must be managed alongside aggressive growth. Competition in both consumer payments and small business services remains intense, and the heavy reliance on Bitcoin revenue introduces volatility and regulatory uncertainty. The success of AI-driven cost reductions and market share gains will be critical for sustaining margins amid these challenges.

Gross Profit Growth Amid Rising Expenses

Block Inc reported strong top-line momentum in Q3 2025, with gross profit climbing 18% year-over-year to $2.66 billion. This growth was primarily fueled by Cash App's robust 24% annual increase in gross profit contributions, supplemented by Square's 9% growth. Despite this positive headline, the company faced significant margin pressure. Transaction and risk loss expenses soared 89% year-over-year, a direct consequence of expanding lending activities within Cash App. Management highlighted AI initiatives like the Goose project and AI/ML-based underwriting as key to boosting efficiency and customer engagement. While plans exist to leverage AI for cost reduction and faster product development, particularly through virtual COO/CFO tools, the earnings call provided no concrete metrics quantifying these anticipated savings or hardware adoption rates. The company's decision to raise its full-year gross profit guidance to $10.243 billion signaled underlying confidence in sustaining this growth trajectory. However, the substantial rise in lending-related expenses and the lack of verified AI cost efficiencies present ongoing execution risks. Furthermore, the quarter's financial results missed Wall Street expectations, with earnings per share and revenue falling short of forecasts, triggering a stock decline shortly after the announcement. The path to maintaining gross profit expansion now hinges on successfully navigating these margin pressures and delivering tangible cost benefits from its AI investments.

Growth Risks and Long-Term Catalysts

The stock of Block Inc., operator of the Cash App and payment platforms, fell 3.69% after its third-quarter 2025 results missed Wall Street expectations for both earnings and revenue. Shares dipped amid concerns that execution challenges could weigh on its broader growth strategy. The company reported diluted EPS of $0.54, 14.3% below forecasts, and revenue of $6.11 billion, 3.5% short of estimates. Despite the miss, Block raised its full-year revenue guidance to $10.243 billion, buoyed by an 18% year-over-year surge in gross profit to $2.66 billion.

Management's optimism hinges partly on AI-driven initiatives like Square AI tools, which are embedded in seller operations and financial automation. Meanwhile, hardware sales through its Proto division-offering cryptocurrency mining rigs and ASIC chips-are positioned as a growth lever, though the firm provided no adoption metrics for Proto products during the quarter. Cash App's performance added support, with gross profit climbing 24% year-over-year and its payment volume expanding 12% at Square, signaling continued market share gains.

Bitcoin remains a key revenue engine, accounting for 62% of Cash App's $16.2 billion 2024 revenue and driving $76.4 billion in customer inflows during Q2 2025. The platform's 57 million U.S. monthly active users and 24 million Cash Card holders show strong engagement, with hardware penetration reaching 42% of Cash App users in 2024. Long-term, rising Bitcoin adoption and Proto's hardware ambitions could fuel recurring revenue streams, but execution risks linger.

Near-term, Block faces unresolved questions about the monetization scale of Proto hardware and the tangible impact of AI cost savings, as management offered no hard data on efficiency gains or adoption rates. The stock's reaction to the earnings miss also hints at valuation sensitivity, with investors wary of potential guidance misses if growth initiatives underdeliver. While Bitcoin's ecosystem growth and AI integration offer upside, the absence of measurable traction for new ventures tempers optimism and demands careful monitoring of execution.