Cloudflare on Thursday joined a growing list of tech companies, including Meta Inc., Microsoft Inc. and Amazon Inc., that are reporting increased revenue alongside large-scale layoffs, both trends attributed to the use of AI.
Cloudflare, which provides internet security and performance services to millions of websites around the world, announced as part of its first-quarter 2026 earnings report Thursday that it will cut its workforce by about 20%, equivalent to 1,100 people.
“We’ve never done anything like this in Cloudflare’s history,” co-founder and CEO Matthew Prince said Thursday during the company’s quarterly conference call, marking the company’s first mass layoffs in its 16-year history. The company is cutting staff across all teams and regions, except for salespeople responsible for revenue quotas, CFO Thomas Seifert detailed on a conference call.
News of the layoffs comes as the company reported quarterly sales of $639.8 million, up 34% year over year and the highest single quarter in the company’s history. However, on top of this, it incurred a loss of $62 million compared to a loss of $53.2 million in the same period last year.
The widening losses even as revenue soared highlights a common contradiction in Cloudflare’s story. This means that while the company is growing rapidly, it is not yet consistently profitable. However, the loss was a small percentage of revenue, and the quarter was accompanied by a number of other positive indicators. For example, Cloudflare reported that its “remaining performance obligations” exceeded $2.5 billion, an increase of 34% year-over-year. RPO is a popular metric these days to represent revenue that is under contract but not yet delivered.
Therefore, Prince argued that the 20% reduction was not due to cutting costs, but solely due to the use of AI.
“Today’s actions are not about cost-cutting initiatives or individual performance evaluations. They are about Cloudflare defining how world-class, high-growth companies operate and create value in the age of agent AI,” Prince and Cloudflare co-founder and president Michel Zatlin said in a related blog post about the layoffs.
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Prince acknowledged on the conference call that Cloudflare was initially cautious about adopting AI itself, even though it has been selling products powered by AI.
“Internally, the turning point was last November. At that point, we saw a huge increase in productivity across the team, with team members being 2x, 10x, even 100x more productive than before. It was like going from a manual screwdriver to an electric screwdriver,” he explained.
“Cloudflare’s usage of AI has increased by over 600% in the past three months alone,” he added.
Prince highlighted internal use of AI coding, saying that virtually the entire R&D team now uses the company’s proprietary Workers platform, a tool that allows developers to build and run software directly on Cloudflare’s global network, including Vibe coding capabilities. He also said that 100% of the code generated in this way and deployed for use in Cloudflare products “is currently being reviewed by autonomous AI agents.”
But developers aren’t the only ones using AI within the company, he says. “Employees across the company, from engineering to human resources to finance to marketing, run thousands of AI agent sessions every day to get their work done.”
As a result, he claimed, these highly productive AI-enabled employees require fewer support staff.
“A lot of the support people behind them, you know, aren’t going to be the drivers of the company going forward,” Prince said.
Interestingly, Prince said that Cloudflare is “going to continue to hire people and continue to invest in them, because the people who are leveraging these tools are more productive than we’ve ever seen. We will have more employees in 2027 than at any point in 2026.”
Cloudflare announced that it ended the first quarter with approximately 5,500 employees before layoffs.
The pattern Prince described—deploying advances in AI to justify layoffs even during periods of strong revenue growth—is quickly becoming a familiar pattern across the tech industry. Whether that reflects true structural change or serves as a convenient cover for cost discipline is a question that will preoccupy investors and employees for some time to come.
“Just because you’re healthy doesn’t mean you can’t be healthier,” Prince said when asked by an analyst on a conference call why such a large cut was necessary after such a strong quarter.
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