By Angela Palumbo

Upwork says that some businesses have been pulling back spending for freelance workers and turning to artificial intelligence to cut costs. That could signal a problem for the jobs market.

Upwork reported first-quarter financial results after the stock market closed on Thursday. The online marketplace that connects clients to freelance workers posted adjusted earnings of 35 cents a share on revenue of $195.5 million. Analysts surveyed by FactSet were expecting earnings of 28 cents a share on revenue of $195.6 million.

Management said on the earnings conference call Thursday night that demand to hire freelance workers has taken a hit as businesses deal with sticky inflation, continued high interest rates, and the spike in energy costs due to the war in Iran.

"In some places, particularly at the lowest end, customers were adopting AI tools to supplement their needs as they experienced financial pressures," CFO Erica Gessert said on the call.

Upwork cut its fiscal 2026 revenue guidance to between $760 million and $790 million, down from $835 million to $850 million. Shares were falling 20% to $8.33.

It's not surprising that broader economic pressures are affecting freelance work, as businesses tend to cut freelance hiring first when trying to bring down costs. However, Upwork's commentary also highlights that businesses are using AI to do tasks hired workers can do to bring down costs. That not only spooked Upwork shareholders, but also investors of Robert Half, a company that assists in temp hiring and consulting. Shares dropped 3.7% to $26.38 on Friday.

Freelance work isn't shown in the jobs report. However, Upwork's commentary regarding business cost headwinds amid broader economic uncertainty and AI usage could be an early sign of what's to come.

"We are concerned that enterprises are increasingly gravitating toward smaller, leaner workforces augmented by AI -- a trend that, in our view, would pressure not only fulltime headcount but freelance budgets as well, " Citizens analyst Matthew Condon wrote on Thursday. He downgraded the stock to Market Perform from Outperform without a price target.

Upwork's earnings came one night before the Bureau of Labor Statistics released the April jobs report. The economy added 115,000 jobs last month, which was better than economist's estimates of 65,000. But there were also some cracks that appeared. Payroll figures for February and March were revised down, and healthcare hiring strength continues to dominate.

The information sector, which includes tech roles, shed 13,000 jobs. The sector has now lost 342,000 jobs since its November 2022 peak. Tech job cuts are rising this year. According to Layoffs.fyi, a website that tracks tech layoffs, 101,550 tech employees have been laid off in 2026. That's getting close to the 124,201 total the website reported for all of 2025.

Tech companies continue to point to AI as a reason for their layoff decisions, even as some experts believe it's just an excuse.

Upwork announced its own round of layoffs on Thursday, saying it's slashing 24% of its workforce to help meet profitability goals. The company also said AI is changing the way work is done, and "smaller, differently resourced teams in product and engineering can make a bigger impact than ever."

Cloudflare also said on Thursday that it's cutting about 1,100 jobs as the cybersecurity company focuses on roles that can directly benefit from AI usage.

Upwork's earnings and the continued uptick of tech layoffs this year suggest that economic headwinds and AI adoption are leading to a change in how companies are hiring, and their layoff decisions.

Write to Angela Palumbo at angela.palumbo@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 08, 2026 14:16 ET (18:16 GMT)

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