Block, the payments company behind Square and Cash App, saw its shares jump on Wednesday after Bank of America analysts argued that the company's 2027 targets are achievable largely through its merchant-focused Square business—even if Cash App's banking features continue to struggle.
In a note to clients, Bank of America Securities projected that Block will deliver more than 15% gross profit growth in 2027, along with a 32% adjusted operating income margin. The bank also said it expects the company to start booking revenue from artificial intelligence initiatives in the fourth quarter of this year.
Square takes the lead
Block's two main businesses serve very different customers. Square provides payment processing tools, point-of-sale systems, and other services to small and medium-sized merchants. Cash App, meanwhile, is a peer-to-peer payments app that has expanded into banking-like features such as direct deposit, debit cards, and stock investing.
For a while, investors focused on Cash App's potential to become a full-fledged digital bank. But Bank of America's analysis suggests that the near-term growth story is coming from Square. The bank expects faster growth in Square's gross payment volume—the total dollar value of transactions processed through its platform—and in its gross profit. That momentum, the analysts argue, could keep building into 2027.
The distinction matters because the two businesses have different economics. Square's revenue is tied to transaction volumes and merchant services, while Cash App's banking features generate revenue through fees, interest, and other financial services. If Cash App's banking adoption slows, it could weigh on overall growth—but Bank of America believes Square can carry the load.
What the numbers mean
Gross profit growth of more than 15% would be a solid performance for a company of Block's size. Gross profit is the revenue left after subtracting the direct costs of providing services, and it's a key metric for payments companies because it reflects the underlying profitability of their core operations.
The 32% adjusted operating income margin target is also notable. Adjusted operating income excludes certain one-time costs and stock-based compensation, giving a clearer picture of ongoing profitability. Reaching that level would mark a significant improvement from Block's historical margins, which have been pressured by heavy investment in new products and expansion.
Bank of America's confidence in these targets suggests that management's long-term plan is credible, even if the market has been skeptical about Cash App's banking ambitions. The bank's view is that Square's scale and network effects can drive efficiency gains, pushing margins higher over time.
AI revenue on the horizon
The mention of initial AI revenue in the fourth quarter is a new wrinkle. Many technology companies are racing to monetize artificial intelligence, and Block appears to be positioning itself to do the same. While the bank didn't specify what form this revenue would take, it could come from AI-powered tools for merchants, such as fraud detection, customer insights, or automated marketing.
For investors, the key takeaway is that AI could become a new growth driver for Block, adding to the momentum from Square. However, the bank's forecast suggests that AI revenue will be modest at first—"initial" implies it's just the beginning, not a major contributor to the 2027 numbers.
What it means for investors
For everyday investors, this analysis offers a clearer picture of where Block's growth is likely to come from. If you own Block shares or are considering them, the message is that Square's merchant business is the engine, while Cash App's banking features are more of a wildcard.
That's important because it changes how you should evaluate the company. Instead of betting on Cash App becoming a banking powerhouse, the bull case rests on Square's ability to keep growing and improving its margins. The bank's forecast implies that even if Cash App's banking features don't rebound, Block can still hit its targets.
Of course, forecasts are not guarantees. Bank of America's projections are based on its own assumptions about payment volumes, costs, and competitive dynamics. If Square's growth slows or if the company faces regulatory or competitive pressures, the targets could be missed.
Investors should also watch for the AI revenue update in Q4, which could provide an early signal of whether Block can tap into the broader AI trend. As with any company, it's wise to consider how Block fits into your overall portfolio and risk tolerance, rather than making decisions based on a single analyst note.
In the broader context, Block's story is part of a larger shift in payments, where companies are trying to balance growth with profitability. Other companies are also raising their profit targets, reflecting a market that increasingly rewards efficiency. For Block, the path forward appears to run through Square, not Cash App's banking ambitions.
