Cloudflare on Thursday announced it would cut approximately 1,100 jobs, or 20% of its workforce, marking the first mass layoff in the company’s 16-year history. The decision came even as the internet security and performance company reported record quarterly revenue of $639.8 million, a 34% year-over-year increase.
The layoffs, which affect teams across all geographies except revenue-quota-carrying sales staff, were attributed directly to the company’s adoption of artificial intelligence. CEO Matthew Prince said on the quarterly conference call that AI tools had made employees dramatically more productive, reducing the need for support roles.
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AI-driven efficiency, not cost-cutting
Prince and co-founder Michelle Zatlyn wrote in a blog post that the cuts were not a cost-reduction exercise. ‘Today’s actions are not a cost-cutting exercise or an assessment of individuals’ performance; they are about Cloudflare defining how a world-class, high-growth company operates and creates value in the agentic AI era,’ they stated.
The company reported a net loss of $62 million for the quarter, wider than the $53.2 million loss a year earlier. However, the loss as a percentage of revenue shrank, and Cloudflare reported over $2.5 billion in remaining performance obligations (RPO), a 34% year-over-year increase. RPO represents revenue under contract but not yet delivered, a metric investors closely watch.
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Internal AI adoption surged 600% in three months
Prince detailed how the company’s internal use of AI had accelerated rapidly. ‘Cloudflare’s usage of AI has increased by more than 600% in the last three months alone,’ he said. He described the tipping point as November 2025, when teams began seeing productivity gains of 2x, 10x, and even 100x.
Virtually the entire R&D team now uses Cloudflare’s Workers platform, including its ‘vibe coding’ feature, to build and deploy software. Prince noted that 100% of code produced this way and deployed into products is reviewed by autonomous AI agents. Employees across engineering, HR, finance, and marketing run thousands of AI agent sessions daily.
‘A lot of the support people that provide support behind them, those roles aren’t going to be the roles that drive companies going forward,’ Prince said, explaining why support staff were disproportionately affected.
A familiar pattern in Big Tech
Cloudflare joins a growing list of technology companies — including Meta, Microsoft, and Google — that have reported rising revenues alongside significant layoffs, with executives citing AI as the driving force. The pattern raises questions about whether these moves reflect genuine structural transformation or provide convenient cover for cost discipline.
When an analyst asked why the company needed to cut so deeply after a strong quarter, Prince replied, ‘Just because you’re fit doesn’t mean you can’t get fitter.’
Despite the cuts, Prince said Cloudflare plans to continue hiring. ‘I would guess that in 2027 we’ll have more employees than we did at any point in 2026,’ he said. The company ended the first quarter with approximately 5,500 employees before the layoffs.
What this means for the tech workforce
The layoffs at Cloudflare underscore a broader shift in the tech industry: companies are using AI to increase per-employee output, which in turn reduces headcount even as business grows. For investors, this dynamic can improve margins and profitability. For employees, it signals that roles focused on support, administration, and non-revenue-generating functions are increasingly vulnerable.
The question of whether AI will create more jobs than it eliminates remains hotly debated. Nvidia CEO Jensen Huang recently argued that AI is ‘creating an enormous number of jobs,’ while the reality for workers at companies like Cloudflare is that their roles are being eliminated in favor of automated systems.
Conclusion
Cloudflare’s layoffs represent a significant moment in the company’s history and a clear signal of how deeply AI is reshaping the tech workforce. The company’s record revenue and growing RPO suggest strong business momentum, but the decision to cut 20% of staff — justified by AI productivity gains — highlights the human cost of that transformation. Whether this model leads to sustainable growth or simply masks cost-cutting will be a key question for investors and employees alike in the years ahead.
FAQs
Q1: Why did Cloudflare lay off 1,100 employees if revenue hit a record high?
CEO Matthew Prince said the layoffs were not a cost-cutting measure but a response to massive productivity gains from AI adoption. The company found that AI tools made employees significantly more efficient, reducing the need for support and non-revenue-generating roles.
Q2: How much did Cloudflare’s AI usage increase?
Prince reported that Cloudflare’s internal use of AI increased by more than 600% in the three months leading up to the layoffs. Employees across the company now run thousands of AI agent sessions daily.
Q3: Will Cloudflare continue hiring after the layoffs?
Yes. Prince said the company plans to hire more people in 2027 and expects headcount to exceed its 2026 peak. The focus will be on employees who embrace AI tools, which Prince described as making people ‘so much more productive.’
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