Cloudflare has become the latest major tech firm to report both rising revenue and significant workforce reductions, citing artificial intelligence as the driving force behind both outcomes. The company joins Meta, Microsoft, and Google in this trend.

On Thursday, Cloudflare—a provider of internet security and performance services for millions of websites globally—announced it would cut about 20% of its workforce, equating to roughly 1,100 employees. The layoffs were disclosed as part of its first-quarter 2026 earnings report. "We’ve never done something like this in Cloudflare’s history," co-founder and CEO Matthew Prince said during the quarterly conference call, noting this marks the first mass layoff in the company's 16-year history. CFO Thomas Seifert explained that the cuts would affect all teams and geographic regions, except for salespeople with revenue quotas.

The layoff announcement coincided with the company reporting quarterly revenues of $639.8 million—a 34% year-over-year increase and the highest single quarter in Cloudflare’s history. However, the company also posted a loss of $62.0 million, compared to a $53.2 million loss in the same period last year. This widening loss, despite surging revenue, underscores a familiar paradox for Cloudflare: rapid growth without consistent profitability. Yet the loss represented a smaller percentage of revenue, and other metrics painted a more positive picture. For instance, Cloudflare reported over $2.5 billion in "remaining performance obligations," a 34% year-over-year increase. RPO is a key metric for revenue under contract but not yet delivered.

Prince insisted the 20% cuts were not about reducing expenses but were strictly due to AI adoption. "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," Prince and co-founder and COO Michelle Zatlyn wrote in a blog post about the layoffs.

Prince acknowledged that while Cloudflare has been selling AI-powered products, the company was initially cautious about using AI internally. "Internally, the tipping point was last November. At that point, across our teams, we began to see massive productivity gains, team members that were two, 10, even 100 times more productive than they had been before. It was like going from a manual to an electric screwdriver," he described. "Cloudflare’s usage of AI has increased by more than 600% in the last three months alone," he added.

Prince highlighted internal AI coding usage, noting that virtually the entire R&D team now uses the company’s own Workers platform—a tool for building and running software on Cloudflare’s global network—including its vibe coding feature. He also noted that 100% of the code produced this way and deployed in Cloudflare’s products is "now reviewed by autonomous AI agents."

But AI isn't limited to developers. "Employees across the company from engineering to HR to finance to marketing run thousands of AI agent sessions each day to get their work done," Prince said. As a result, these highly productive, AI-empowered employees require fewer support staff. "A lot of the support people that provide support behind them, those roles aren’t going to be the roles that, you know, drive companies going forward," Prince argued.

Interestingly, Prince says Cloudflare "will continue to hire people, and we’ll continue to invest in them because the people that are embracing these tools are just so much more productive than we’d ever seen before. I would guess that in 2027 we’ll have more employees than we did at any point in 2026."

Cloudflare ended the first quarter before layoffs with about 5,500 employees. The pattern Prince described—using AI gains to justify workforce reductions even during strong revenue growth—is becoming increasingly common across the tech industry. Whether this reflects genuine structural transformation or serves as convenient cover for cost discipline is a question investors and employees will grapple with for some time. When an analyst asked why the company needed to cut so deeply after such a strong quarter, Prince replied, "Just because you’re fit doesn’t mean you can’t get fitter."