Cloudflare on Thursday joined a rising record of tech firms — together with Meta, Microsoft, and Google — which have reported elevated income alongside and large layoffs, attributing each developments to their use of AI.
Cloudflare, which gives web safety and efficiency companies to hundreds of thousands of internet sites worldwide, introduced it was slicing its workforce by roughly 20%, which equates to 1,100 individuals, it stated as a part of its first quarter 2026 earnings report on Thursday.
“We’ve by no means achieved one thing like this in Cloudflare’s historical past,” co-founder and CEO Matthew Prince said Thursday on the quarterly convention name, marking the primary mass layoff within the firm’s 16-year historical past. The corporate is slicing individuals from all groups and geographies apart from salespeople who carry income quotas, CFO Thomas Seifert detailed on the decision.
The information of the workforce cuts got here as the corporate reported quarterly revenues of $639.8 million, a 34% year-over-year enhance and the very best single quarter within the firm’s historical past. Nonetheless, this was coupled with a lack of $62.0 million in contrast with dropping $53.2 million within the year-ago quarter.
That widening loss, at the same time as income surged, highlights a well-known paradox in Cloudflare’s story: the corporate is rising quick however has but to show a constant revenue. However the loss was a smaller share of income, and the quarter was coupled with plenty of different optimistic indicators. As an example, Cloudflare reported that it had over $2.5 billion in “remaining efficiency obligations,” a year-over-year progress of 34%. RPO is the favourite metric as of late to point income beneath contract however not but delivered.
Therefore, Prince insisted, the 20% cuts had been to not cut back bills however had been strictly due to its use of AI.
“Right this moment’s actions should not a cost-cutting train or an evaluation of people’ efficiency; they’re about Cloudflare defining how a world-class, high-growth firm operates and creates worth within the agentic AI period,” Prince and Cloudflare co-founder and COO, Michelle Zatlyn, wrote in a associated weblog put up in regards to the layoffs.
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Prince acknowledged on the decision that though Cloudflare has been promoting AI-powered merchandise, it was at first cautious about adopting AI itself.
“Internally, the tipping level was final November. At that time, throughout our groups, we started to see huge productiveness good points, group members that had been two, 10, even 100 occasions extra productive than that they had been earlier than. It was like going from a guide to an electrical screwdriver,” he described.
“Cloudflare’s utilization of AI has elevated by greater than 600% within the final three months alone,” he added.
Prince highlighted the inner use of AI coding, saying that just about your complete R&D group is now utilizing the corporate’s personal Employees platform — a instrument that lets builders construct and run software program immediately on Cloudflare’s international community — together with its vibe coding function. He additionally famous that 100% of the code produced this manner and deployed to be used in Cloudflare’s merchandise is “now reviewed by autonomous AI brokers.”
But it surely’s not simply builders who’re utilizing AI internally, he stated. “Staff throughout the corporate from engineering to HR to finance to advertising and marketing run hundreds of AI agent classes every day to get their work achieved.”
Consequently, these extremely productive, AI-powered staff require fewer assist workers, he argued.
“Quite a lot of the assist folks that present assist behind them, these roles aren’t going to be the roles that, you recognize, drive firms going ahead,” Prince stated.
Apparently, Prince says that Cloudflare “will proceed to rent individuals, and we’ll proceed to spend money on them as a result of the individuals which are embracing these instruments are simply a lot extra productive than we’d ever seen earlier than. I might guess that in 2027 we’ll have extra staff than we did at any level in 2026.”
Cloudflare stated it ended its first quarter earlier than layoffs with a headcount of about 5,500.
The sample Prince described — deploying AI good points as justification for workforce reductions even throughout a interval of robust income progress — is quick changing into a well-known script throughout the tech business. Whether or not it displays true structural transformation or acts as handy cowl for value self-discipline is a query that traders and staff will probably be wrestling with for a while to come back.
When requested by an analyst on the decision why the corporate wanted to chop so deeply after such quarter, Prince stated, “Simply since you’re match doesn’t imply you’ll be able to’t get fitter.”
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