Cloudflare says AI made 1,100 jobs obsolete, even as revenue hit a record high

Source: TechCrunch

Layoffs and Revenue

Cloudflare announced a workforce reduction of approximately 20 %—about 1,100 employees—as part of its first‑quarter 2026 earnings report. The cuts affect all teams and geographies except for salespeople who carry revenue quotas, according to CFO Thomas Seifert.

The company reported quarterly revenue of $639.8 million, a 34 % year‑over‑year increase and the highest single quarter in its history. Despite the revenue surge, Cloudflare posted a loss of $62.0 million, wider than the $53.2 million loss in the year‑ago quarter. However, the loss represented a smaller percentage of revenue, and the quarter featured several positive indicators, including over $2.5 billion in “remaining performance obligations” (RPO), up 34 % YoY.

Co‑founder and CEO Matthew Prince emphasized that the layoffs were not a cost‑cutting exercise but a strategic move to define how a high‑growth company operates in the “agentic AI era,” as detailed in a related blog post with co‑founder and COO Michelle Zatlyn.

AI Adoption and Productivity

Prince noted that Cloudflare’s internal use of AI surged dramatically, with a 600 % increase in AI usage over the last three months. He described the productivity boost as moving from a manual screwdriver to an electric one, with some team members becoming 2, 10, or even 100 times more productive.

Key points of AI integration:

• The R&D team now uses Cloudflare’s own Workers platform—including the Vibe coding feature—to build and run software directly on the global network. All code produced and deployed through this workflow is reviewed by autonomous AI agents.
• Employees across engineering, HR, finance, and marketing run thousands of AI agent sessions daily to complete their work.
• The heightened productivity of AI‑augmented employees reduces the need for traditional support roles.

Prince added that Cloudflare will continue hiring and investing in talent that embraces these tools, projecting that the company could have more employees in 2027 than at any point in 2026.

Future Outlook

Cloudflare ended the quarter before the layoffs with a headcount of roughly 5,500. The company’s narrative—leveraging AI gains to justify workforce reductions amid strong revenue growth—mirrors a broader trend in the tech industry. Whether this reflects a genuine structural transformation or serves as a convenient cover for cost discipline remains a question for investors and employees alike.

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