Block (XYZ) is entering 2026 with a structurally leaner cost base and rising confidence in its ability to expand margins as artificial intelligence tools reshape how the company operates, UBS Securities said Friday in a report.

AI-driven productivity gains are beginning to show up in operating leverage and could accelerate as Block streamlines its organization, the report said.

UBS highlighted Block's plan to reduce its workforce by 40% to fewer than 6,000 employees by the end of Q2, a move the company framed as a shift in its "efficiency curve" enabled by automation and AI-supported workflows, not as traditional cost-cutting.

The staff changes position Block to scale more profitably across both Cash App and Square through 2026 and beyond, the report said.

Block expects fiscal 2026 gross profit of about $12.2 billion, up 18%, and adjusted earnings before interest and taxes of $3.2 billion at a 26% margin, UBS said. Adjusted diluted EPS in the full year is projected at $3.66, while Q1 gross profit is forecast at $2.8 billion with $600 million in adjusted EBIT, the report said.

Cash App gross profit rose 33% in Q4 from a year earlier, and Square's gross payment volume accelerated into early 2026, UBS said. These trends support Block's multiyear margin expansion as the company leans further into automation and a more focused operating model, the report said.

UBS has a buy rating on Block stock and maintained its $90 price target.

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