On Thursday, Cloudflare joined an increasing number of IT companies, such as Microsoft, Amazon, and Meta, that have disclosed both significant layoffs and higher revenue, attributing both trends to their usage of AI.
As part of its first quarter 2026 financial report on Thursday, Cloudflare, which offers internet security and performance services to millions of websites globally, said it was reducing its headcount by about 20%, or 1,100 employees.
During the quarterly conference call on Thursday, co-founder and CEO Matthew Prince declared, “We’ve never done something like this in Cloudflare’s history.” This was the first major layoff in the 16-year history of the firm. CFO Thomas Seifert explained on the call that the company is eliminating employees from all teams and regions, with the exception of salesmen who have revenue quotas.
The company declared quarterly revenues of $639.8 million, a 34% year-over-year growth and the largest single quarter in the company’s history, at the same time that the workforce cuts were announced. Nevertheless, this was accompanied by a $62.0 million loss as opposed to a $53.2 million loss in the same period last year.
That mounting deficit, despite a spike in sales, highlights a well-known paradox in Cloudflare’s narrative: the company is expanding quickly but has not yet achieved consistent profitability. However, there were many other encouraging signs for the quarter, and the loss was a lesser percentage of revenue. For example, Cloudflare said its “remaining performance obligations” exceeded $2.5 billion, a 34% increase from the previous year. These days, the most used statistic to show income under contract but not yet delivered is RPO.
Prince maintained that the 20% reductions were solely due to their usage of AI and had nothing to do with cutting costs.
In a related blog post regarding the layoffs, Prince and Cloudflare co-founder and COO Michelle Zatlyn stated, “Today’s actions are not a cost-cutting exercise or an assessment of individuals’ performance; they are about Cloudflare defining how a world-class, high-growth company operates and creates value in the agentic AI era.”
Although Cloudflare has been selling AI-powered products, Prince admitted during the call that the company was first hesitant to embrace AI itself.
On the inside, last November was the turning point. At that moment, we started to witness significant increases in productivity across all of our teams, with team members being two, ten, or even one hundred times more productive than they had previously been. He explained, “It was like switching from a manual to an electric screwdriver.”
“In just the last three months, Cloudflare’s use of AI has increased by more than 600%,” he continued.
Prince emphasized the internal application of AI coding, stating that almost the whole R&D team now uses the company’s own Workers platform, which allows developers to create and operate software directly on Cloudflare’s global network, including its full coding capability. Additionally, he mentioned that all of the code created in this manner and used in Cloudflare’s products is “now reviewed by autonomous AI agents.”
However, he added, AI is being used internally by more than simply coders. “To complete their tasks, employees from engineering, HR, finance, and marketing run thousands of AI agent sessions every day.”
He claimed that as a result, fewer support staff members are needed for these extremely productive AI-powered workers.
According to Prince, “many of the support personnel who work behind them won’t be the roles that, you know, drive companies going forward.”
It’s interesting to note that Prince states that Cloudflare “will continue to hire people, and we’ll continue to invest in them because the people that are embracing these tools are just so much more productive than we’ve ever seen before.” We will likely employ more people in 2027 than we did at any point in 2026.
Cloudflare reported that the company had roughly 5,500 employees at the conclusion of its first quarter before layoffs.
In the tech sector, the pattern Prince outlined—using AI advancements as a rationale for staff reductions even during a time of robust revenue growth—is quickly becoming a well-known screenplay. Investors and staff will be debating whether it truly represents structural change or serves as a convenient front for cost control for some time to come.
“Just because you’re fit doesn’t mean you can’t get fitter,” Prince responded when an analyst on the call questioned why the corporation had to make such significant cuts following such a successful quarter.