Cloudflare says AI made 1,100 jobs obsolete, even as revenue hit a record high

Cloudflare on Thursday joined a growing list of tech companies — including Meta, Microsoft and Amazon — that have reported higher revenues alongside massive layoffs, with both trends attributed to their use of AI.

Cloudflare, which provides Internet security and performance services to millions of websites around the world, announced it will reduce its workforce by about 20%, down to 1,100 people, it said Thursday in its first-quarter 2026 earnings report.

“We’ve never done anything like this in the history of Cloudflare,” said co-founder and CEO Matthew Prince said Thursday during the quarterly conference call, marking the first mass layoff in the company’s 16-year history. The company is cutting people from all teams and regions, with the exception of salespeople who have sales quotas, CFO Thomas Seifert said on the call.

News of the workforce cuts came when the company reported quarterly revenue of $639.8 million, up 34% year over year and the highest quarter in the company’s history. However, this came at a loss of $62.0 million compared to a loss of $53.2 million in the prior year quarter.

That widening loss, even as revenue soared, highlights a familiar paradox in Cloudflare’s story: the company is growing rapidly, but hasn’t yet made consistent profits. But the loss was a smaller percentage of sales, and the quarter was accompanied by many other positive indicators. For example, Cloudflare reported that it had more than $2.5 billion in “remaining performance obligations,” a year-over-year growth of 34%. RPO is now the favored metric to indicate revenue that is under contract but not yet delivered.

Therefore, Prince emphasizes that the 20% cuts are not intended to reduce costs, but solely due to the use of AI.

“Today’s actions are not a cost-cutting exercise or an assessment of the performance of individuals; they are about Cloudflare defining how a world-class, fast-growing company operates and creates value in the agentic AI era,” said Prince and Cloudflare co-founder and president Michelle Zatlyn. wrote in a related blog post about the layoffs.

Prince acknowledged on the call that while Cloudflare sells AI-powered products, it was initially cautious about adopting AI itself.

“Internally, the tipping point was last November. That’s when we started seeing huge productivity gains across all our teams, team members who were two, ten, even a hundred times more productive than before. It was like going from a manual to an electric screwdriver,” he described.

“Cloudflare’s use of AI has increased by more than 600% in the last three months alone,” he added.

Prince highlighted the internal use of AI coding, saying that virtually the entire R&D team is now using the company’s own Workers platform – a tool that allows developers to build and run software directly on Cloudflare’s global network – including the vibe coding feature. He also noted that 100% of the code produced in this way and deployed for use in Cloudflare’s products “is now reviewed by autonomous AI agents.”

But it’s not just developers using AI internally, he said. “Employees across the company, from engineering to HR, from finance to marketing, are running thousands of AI agent sessions every day to get their work done.”

As a result, these highly productive, AI-powered workers require fewer support staff, he argued.

“A lot of the supportive people that are providing support behind them are not going to be the roles that, you know, move companies forward,” Prince said.

Interestingly enough, Prince says Cloudflare “will continue to hire people, and we will continue to invest in them, because the people who embrace these tools are so much more productive than we’ve ever seen before. I suspect we’ll have more employees in 2027 than we ever did in 2026.”

Cloudflare said it ended the first quarter before layoffs with a workforce of about 5,500.

The pattern Prince described — using AI gains to justify workforce reductions even during a period of strong revenue growth — is fast becoming a familiar script in the tech industry. Whether it reflects a genuine structural transformation or is a convenient cover for cost discipline is a question that investors and employees will grapple with for some time to come.

When asked by an analyst on the call why the company had to make such deep cuts after such a good quarter, Prince said: “Just because you’re fit doesn’t mean you can’t get fitter.”