On Thursday, Cloudflare became part of an expanding group of tech firms — such as Meta, Microsoft, and Amazon — that have reported surging revenues alongside significant layoffs, linking both phenomena to their utilization of AI.

Cloudflare, which offers internet security and performance solutions to millions of websites across the globe, revealed it would be reducing its workforce by about 20%, which translates to 1,100 employees, as mentioned in its first quarter 2026 earnings announcement on Thursday.

“This is an unprecedented move in Cloudflare’s history,” stated co-founder and CEO Matthew Prince during the quarterly conference call, signifying the first substantial layoff in the company’s 16-year existence. The reductions will impact employees from all teams and regions except for those in sales roles with revenue targets, as CFO Thomas Seifert clarified during the call.

The announcement regarding job cuts coincided with the company disclosing quarterly revenues of $639.8 million, marking a 34% increase year-over-year and representing the highest quarter in the company’s history. Nonetheless, this was accompanied by a loss of $62.0 million, compared to a loss of $53.2 million in the same quarter last year.

This widening deficit, despite the revenue increase, underscores a well-known paradox in Cloudflare’s narrative: the company is scaling rapidly but has not managed to achieve consistent profitability. However, the loss represented a smaller percentage of revenue, and the quarter was accompanied by various other positive signs. For instance, Cloudflare reported over $2.5 billion in “remaining performance obligations,” reflecting a 34% year-over-year growth. RPO is currently a favored metric to indicate revenue that is contracted but not yet realized.

Thus, Prince emphasized that the 20% reductions were not aimed at cutting costs but were solely a result of its AI integration.

“Today’s steps are not aimed at cutting costs or evaluating individual performance; they are focused on Cloudflare determining how a top-tier, high-growth firm functions and adds value in the age of agentic AI,” Prince and Cloudflare co-founder and president, Michelle Zatlyn, explained in a related blog post regarding the layoffs.

Prince acknowledged during the call that even though Cloudflare has been marketing AI-infused products, it was initially hesitant to embrace AI internally.

“Internally, the pivotal moment was last November. At that stage, across our teams, we started witnessing immense productivity improvements, with team members becoming two, 10, or even 100 times more productive than before. It felt like transitioning from a manual to an electric screwdriver,” he described.

“Cloudflare’s utilization of AI has surged by over 600% in the past three months alone,” he added.

Prince emphasized the internal application of AI coding, stating that nearly the whole R&D team now utilizes the company’s own Workers platform — a resource enabling developers to create and run software directly on Cloudflare’s international network — including its vibe coding functionality. He also mentioned that 100% of the code generated this way and implemented for Cloudflare’s products is “now overseen by autonomous AI agents.”

However, it is not solely developers who are harnessing AI internally, he noted. “Staff throughout the organization, from engineering to HR to finance to marketing, engage in thousands of AI agent sessions daily to accomplish their tasks.”

Consequently, these highly efficient, AI-enhanced employees need less support personnel, he contended.

“A significant portion of the support staff assisting them will not be the roles that drive companies in the future,” Prince stated.

Interestingly, Prince remarked that Cloudflare “will persist in hiring new staff, and we will keep investing in them because those who are embracing these tools are proving to be far more productive than we’ve ever observed. I would anticipate that by 2027, we’ll have a larger workforce than at any previous point in 2026.”

Cloudflare noted it concluded its first quarter prior to layoffs with around 5,500 employees.

The trend Prince outlined — leveraging AI efficiencies as rationale for workforce cuts during a time of robust revenue growth — is quickly becoming a standard narrative in the tech sector. Whether this represents genuine structural change or serves as a convenient rationale for financial discipline is a question investors and staff will grapple with for some time.

When an analyst inquired during the call why the company needed to implement such significant cuts after a strong quarter, Prince replied, “Just because you’re fit doesn’t imply you can’t become fitter.”