MW Cloudflare to cut 20% of staff in a big bet on AI. Investors aren't sold.

By William Gavin

Cloudflare's stock falls as co-founders say the layoffs are 'not a cost-cutting exercise'

Cloudflare will lay off more than 1,100 workers, it announced Thursday.

Cloudflare said it was laying off at least a fifth of its global workforce, citing the company's increased adoption of artificial-intelligence tools.

"The way we work at Cloudflare has fundamentally changed. We don't just build and sell AI tools and platforms," Cloudflare's co-founders said in a letter to staff published on Thursday alongside the cybersecurity company's latest earnings report.

The co-founders added that Cloudflare employees' use of AI tools grew by more than 600% in the March quarter. Cloudflare (NET) also said it needs to be "intentional" as it embraces AI agents to deliver value to customers.

"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," CEO Matthew Prince and President Michelle Zatlyn said in the letter.

The tech company said it would lay off more than 1,100 people across its global workforce. As of Dec. 31, 2025, the company employed 5,156 full-time staff, including 2,452 employees located outside of the U.S.

When Block (XYZ) announced mass layoffs of more than 40% of its staff three months ago, investors cheered the move and sent shares 17% higher. But Cloudflare's stock was falling more than 13% in after-hours trading Thursday.

Cloudflare said it chose to lay off so many people at once to avoid "dragging" its reorganization across multiple quarters, which would slow it down while prolonging uncertainty for workers. The company added that it would take measures to provide laid-off employees with equity in the company.

The company is the latest to cite AI while slashing headcount. The cryptocurrency exchange Coinbase Global (COIN) on Tuesday said it would lay off 14% of its staff and explore combining the roles of multiple people into a single position assisted by AI.

Cloudflare's layoffs came as Prince touted a "very strong start" to 2026.

Cloudflare reported first-quarter revenue of nearly $640 million, a 34% year-over-year increase, and above the $621 billion expected by Wall Street, according to FactSet estimates. Adjusted earnings were 25 cents a share, above the 23 cents expected by analysts.

The company also reported an adjusted operating loss of $73.1 million for the March quarter, compared to $56 million a year earlier. That was slightly more than the projection for between $70 million and $71 million that Cloudflare had offered in February.

Cloudflare expects revenue of between $664 million and $665 million for the second quarter, up from $512 million in the year-ago quarter. It also guided for adjusted earnings per share of 27 cents, compared to 21 cents a year earlier, and operating income of between $90 million and $91 million.

Analysts tracked by FactSet had been modeling $663 million in revenue and 27 cents in adjusted EPS.

Cloudflare said it would take most of its expected $140 million to $150 million layoff-related hit in the second quarter. By the third quarter, the plan will be "substantially complete," the company said.

-William Gavin

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May 07, 2026 18:01 ET (22:01 GMT)

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