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AI-Driven Layoffs Begin
Cloudflare announced it would cut approximately 20% of its workforce, or about 1,100 employees, as part of its first-quarter 2026 earnings report, attributing the move to artificial intelligence.
“cutting approximately 20% of its workforce, or about 1,100 employees”
In its quarterly conference call, co-founder and CEO Matthew Prince said, “We’ve never done something like this in Cloudflare’s history,” describing the layoffs as the first mass reduction in the company’s 16-year history.
Cloudflare reported Q1 2026 revenue of $639.8 million, a 34% year-over-year increase and the highest single quarter in company history, while also posting a net loss of $62.0 million.
The company said the cuts span all teams and geographies, with the exception of sales staff who carry revenue quotas, and it said internal AI usage had increased by more than 600% in the last three months alone.
Cloudflare also said it ended Q1 with a headcount of about 5,500 before the layoffs, while insisting in a blog post co-authored with COO Michelle Zatlyn that the actions were not about reducing expenses.
Executives Defend the Cuts
Cloudflare framed the layoffs as a structural shift rather than a response to individual performance, saying in a release that the job cuts are “not a cost-cutting exercise.”
In an internal message published on its blog, co-founders Matthew Prince and Michelle Zatlyn told employees, “Today’s actions are not a cost-cutting exercise or an assessment of individuals’ performance.”
Investors reacted sharply to the combination of the workforce reduction and guidance, with the Los Angeles Times reporting Cloudflare projected second-quarter revenue of $664 million to $665 million and that its stock dropped around 18% in after-hours trading.
The Los Angeles Times also quoted the executives’ email to employees saying, “The way we work at Cloudflare has fundamentally changed,” and it tied the restructuring to the company’s use of AI-powered tools.
In parallel, Investopedia reported that Cloudflare’s shares were down over 24% in recent trading after the firm said it plans to cut 1,100 jobs, or about 20% of its workforce, citing AI-driven changes in how it operates.
Costs, Guidance, and Uncertainty
Cloudflare said it expects severance and other restructuring to cost between $140 million and $150 million for 2026, and the Los Angeles Times reported that the company’s second-quarter forecast fell short of Wall Street’s expectations.
“Cloudflare forecast second-quarter revenue of $664 million to $665 million”
SiliconANGLE reported that Cloudflare forecast second-quarter revenue of $664 million to $665 million and that the midpoint of $664.5 million was below analyst expectations of about $666 million, while also noting the company planned to reduce its workforce by approximately 1,100 people.
In the same SiliconANGLE account, Cloudflare said it expects to incur charges of $140 million to $150 million in connection with the plan, including $105 million to $110 million in cash costs and $35 million to $40 million in non-cash share-based award expense.
Cloudflare also said internal AI usage had grown more than 600% in three months, with employees across engineering, finance, marketing and human resources running “thousands of AI agent sessions each day,” as it positioned the cuts as part of an “agentic AI-first operating model.”
For departing employees, Business Insider reported that Cloudflare executives said the packages would include the equivalent of their full base pay through the end of 2026, while the company’s stock reaction and guidance left investors watching whether the restructuring would translate into sustained performance.
