Cloudflare Cuts 20% of Staff After Record Quarter, CEO Blames AI

Cloudflare just posted the best quarter in its history and then cut roughly one in five employees. CEO Matthew Prince is not hiding behind soft language: he says AI has made an entire category of workers obsolete.

The numbers behind the cut

Cloudflare announced it was cutting its workforce by approximately 20%, which equates to 1,100 people, as part of its first quarter 2026 earnings report. The company reported quarterly revenues of $639.8 million, a 34% year-over-year increase and the highest single quarter in the company’s history.

It is the first mass layoff in the company’s 16-year history. Cloudflare shares plummeted after-hours Thursday on the news, and sank 24% the following day.

Who got cut, and who stayed

In a Wall Street Journal op-ed, Prince framed the cuts around what he calls “measurers.” He defined measurers as those in middle management, finance, legal, internal auditing, and revenue recognition.

The company is cutting people from all teams and geographies except for salespeople who carry revenue quotas, CFO Thomas Seifert detailed on the call. Prince said the company kept what he called the “builders,” such as engineers, and that “sellers” are also relatively safe from automation.

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The AI justification

Prince insisted the 20% cuts were not to reduce expenses but were strictly because of its use of AI, writing with co-founder Michelle Zatlyn that the actions are about defining how a high-growth company operates in the agentic AI era.

Cloudflare reported that its own use of AI has jumped by more than 600% in just the last three months, and Prince said the company hit a tipping point last November where productivity gains became impossible to ignore. Prince said virtually the entire R&D team is now using the company’s Workers platform, and 100% of code produced this way and deployed in Cloudflare’s products is now reviewed by autonomous AI agents.

The skeptical read

The pattern Prince described, deploying AI gains as justification for workforce reductions even during strong revenue growth, is fast becoming a familiar script across the tech industry, and whether it reflects true structural transformation or convenient cover for cost discipline is a question investors and employees will be wrestling with.

If AI truly made the average Cloudflare employee orders of magnitude more efficient, the company should be seeing margin expansion, not widening losses, yet Cloudflare lost $62 million in Q1 2026, up from $53.2 million a year earlier. The San Francisco firm expects to incur up to $150 million in charges related to the downsizing.

Options market and stocks to watch

NET: Watch for continued repricing after the 24% post-earnings drop, with implied vol likely elevated as traders digest whether 4,400 employees plus AI agents can sustain 30%+ growth.

PYPL: PayPal has already announced plans to cut 20% of its workforce over the next two to three years with similar AI justification. Watch for follow-through on its own AI-driven restructuring narrative.

XYZ: Jack Dorsey’s Block cut 40% of its workforce in February. Watch how its margin profile evolves as more peers adopt the same playbook.

META and AMZN: Watch for any follow-on commentary as the agentic-AI-justifies-layoffs narrative spreads across mega-cap tech. See other news for related coverage.

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