Software stocks fall as Block's big job cuts stoke further AI fears

By Hannah Pedone

'Block may create a playbook for others,' analyst notes, as investors worry tech disruption will diminish demand for software licenses

Software stocks including Workday slid on Friday.

Software stocks dropped on Friday after digital-payments company Block announced it is slashing more than 4,000 employees - further fueling fears that artificial intelligence could decimate employee head counts and hurt demand for software.

Shares of Datadog (DDOG) and Workday (WDAY) ended the day down 4% on Friday, while shares of Salesforce (CRM) fell roughly 2%. The iShares Expanded Tech-Software Sector ETF IGV, an exchange-traded fund that tracks software stocks, closed down roughly 1%.

Concerns have been brewing among investors that AI could do away with the need for workers across sectors, from insurance to wealth management to real estate.

Investors not only worry that AI efficiencies will drive companies to cut costs and head counts; they also fear that fewer employees will directly translate to shrinking demand for traditional software licenses. Many business-software companies sell their products based on customer head count, or on a per-seat basis, and investors are looking carefully at whether software companies will be hit by a decline in these subscriptions.

So when Block (XYZ) announced on Thursday that it is cutting more than 40% of its employees, some analysts interpreted the news as a prequel to a future where AI will replace the workforce. And those fears hit software stocks that were trying to recover after weeks of negative sentiment driven by AI.

The Block job cuts are the latest blow to investor confidence in the software sector's ability to withstand the ongoing threat that AI will dramatically shift the future of work.

On Monday, software stocks lost over $200 billion in market capitalization after Citrini Research released a blog post depicting a hypothetical future where AI leads to mass layoffs.

Read more: Did a blog post just cause software stocks to lose more than $200 billion in market cap?

Truist Securities analyst Matthew Coad said in a note that Block may be a "case study" for how companies' investments in AI could "adversely impact employment rates."

J.P. Morgan analyst Tien-tsin Huang wrote in a note that a new "world of work" is "impending," and that Block is "proactively restructuring" the company to adapt to that reality.

Don't miss: The stock market is reflecting fears of an AI apocalypse for white-collar jobs

Bernstein analyst Harshita Rawat said in a note that she wonders if Block's move could lend credence to the "unemployment fears" that have "gripped markets" recently.

"Block may create a playbook for others," she added.

Some of the biggest software-sector declines on Friday seemed largely unrelated to the AI hysteria around Block's layoffs. Shares of Zscaler (ZS) and Elastic NV (ESTC) lost 12% and 15%, respectively, on Friday, while PAR Technology's stock (PAR) ended the day down 27%. All three companies reported earnings on Thursday afternoon that were poorly received by the market.

Despite all the drama, the iShares Expanded Tech-Software Sector ETF eked out a 1% gain for the week.

And Wedbush analyst Dan Ives said in a Friday note to clients that he expects the software space to see a "major comeback" in the coming months, as investors will recognize that the "disconnected doomsday software trade" is "mispriced."

-Hannah Pedone

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02-27-26 1645ET