Cloudflare credits AI for job cuts despite record revenue

Cloudflare joined a growing roster of tech firms — including Meta, Microsoft, and Amazon — that have reported rising revenues alongside significant layoffs, linking both outcomes to their adoption of artificial intelligence.

The internet security and performance company, which serves millions of websites globally, announced it is reducing its workforce by roughly 20%, amounting to about 1,100 employees, according to its first-quarter 2026 earnings report released Thursday.

"This is an unprecedented step in Cloudflare's history," stated co-founder and CEO Matthew Prince during the quarterly conference call, marking the first large-scale layoff since the company's founding 16 years ago. The cuts will affect all teams and regions except for sales personnel with direct revenue quotas, clarified CFO Thomas Seifert on the call.

The announcement of job reductions coincided with the company reporting quarterly revenue of $639.8 million, a 34% increase year-over-year and its highest quarterly revenue ever. However, this was paired with a net loss of $62.0 million, compared to a loss of $53.2 million in the same quarter last year.

This expanding loss, despite surging revenue, underscores a recurring theme in Cloudflare's narrative: rapid growth without consistent profitability. Nevertheless, the loss represented a smaller proportion of revenue, and the quarter featured several other positive metrics. For example, Cloudflare reported over $2.5 billion in "remaining performance obligations," a 34% year-over-year increase. RPO is a key metric indicating contracted revenue not yet recognized.

Consequently, Prince emphasized that the 20% workforce reduction is not a cost-saving measure but a direct result of its AI integration.

"Today's decisions are not about cost reduction or individual performance evaluations; they represent Cloudflare's vision for operating a world-class, high-growth company and creating value in the age of agentic AI," wrote Prince and Cloudflare co-founder and COO Michelle Zatlyn in a related blog post about the layoffs.

Image Credits:SEC filings; Cloudflare press releases /

Prince pointed to the internal use of AI for coding, noting that nearly the entire R&D team now utilizes the company's own Workers platform — a tool enabling developers to build and run software on Cloudflare's global network — including its AI-assisted coding feature. He added that 100% of the code generated this way and deployed in Cloudflare's products is "now reviewed by autonomous AI agents."

The use of AI extends beyond developers, he said. "Employees company-wide, from engineering to HR, finance, and marketing, run thousands of AI agent sessions daily to complete their tasks."

As a result, these highly productive, AI-augmented employees require less support staff, he explained.

"Many of the supporting roles that assist these employees are not the roles that will drive companies forward," Prince stated.

Interestingly, Prince noted that Cloudflare "will continue hiring and investing in our people because those embracing these tools are achieving unprecedented productivity levels. I anticipate that by 2027, we will have more employees than at any point in 2026."

Cloudflare reported a headcount of approximately 5,500 at the end of the first quarter, prior to the layoffs.

The pattern described by Prince — attributing workforce cuts to AI efficiency gains even during strong revenue growth — is becoming a common narrative across the tech sector. Whether this signifies a genuine structural shift or serves as a convenient rationale for cost management is a question that will likely occupy investors and employees for the foreseeable future.

When an analyst asked why such deep cuts were necessary after a strong quarter, Prince replied, "Just because you're fit doesn't mean you can't get fitter."