Cloudflare lays off 20% of staff as AI tools replace workers

Cloudflare just cut ~20% of its workforce. About 1,100 positions gone. This is because AI tools made those roles unnecessary, CEO Matthew Prince said. This happened during the company’s strongest quarter on record, with revenue hitting $639.8 million.

Prince called it a first in the company’s 16 year history.

“We’ve never done something like this in Cloudflare’s history.”

CFO Thomas Seifert said the cuts hit every team and geography. Only salespeople with quotas got a pass.

Prince and co-founder Michelle Zatlyn wrote that the move wasn’t about cutting costs or judging performance.

To them, it’s about defining how a world-class company operates in what they call “the agentic AI era.”

Cloudflare’s revenue climbs while margins shrink

Cloudflare’s quarterly revenue jumped 34% year over year (YoY). But the net loss widened to $62 million, up from $53.2 million a year earlier.

Adjusted gross margins dropped to 72.8%, a record low. Last year, they sat at 77.1%.

Cloudflare also reported +$2.5 billion in remaining performance obligations. That’s revenue under contract but not yet delivered. The figure grew 34% year over year (YoY).

Cloudflare’s stock drops by 15% on slower growth forecast

Despite the strong Q1, Cloudflare’s stock (NYSE: NET) fell more than 15% in premarket trading on Friday.

The problem was guidance. The company projected Q2 revenue growth of about 30%, slower than the 33.5% it just posted.

Analysts said expectations had run high after a 43% rally in the stock since February.

Still, about four brokerages raised their price targets after the report. The median target now sits at $243, per Reuters.

Cloudflare’s internal AI usage surges 600%

Prince said Cloudflare’s internal AI usage grew +600% in the prior three months. Teams started reporting productivity gains of “two, 10, even 100 times” previous levels.

Almost all of the R&D team now codes using Cloudflare’s own Workers platform, including a feature the company calls “vibe coding.”

Every line of code deployed through that pipeline gets reviewed by autonomous AI agents, Prince said. Highly productive employees now need fewer support staff.

“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,” said Prince.

When an analyst asked why such deep cuts were needed after a strong quarter, Prince responded, “Just because you’re fit doesn’t mean you can’t get fitter.”

Cloudflare joins Meta, Microsoft, Amazon, and Jack Dorsey’s Block in pairing workforce reductions with AI-driven productivity claims.

But some tech executives, including OpenAI CEO Sam Altman, have cautioned that companies may be using AI as a rationale for layoffs they would have pursued anyway.

He said, “I don’t know what the exact percentage is, but there’s some AI washing where people are blaming AI for layoffs that they would otherwise do, and then there’s some real displacement by AI of different kinds of jobs.”

Prince said Cloudflare ended Q1 with ~5,500 employees before the cuts. He predicted the company would have more employees in 2027 than at any point in 2026.

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