Cloudflare shocked investors by announcing a major workforce reduction just after posting better-than-expected quarterly results. Shares plunged roughly 18% in after-hours trading as the market reacted to the company’s plan to eliminate over 1,100 positions, representing about one-fifth of its global staff. This move is part of a strategic shift toward what executives call an ‘agentic AI-first operating model.’ While the layoffs stirred unease, the company’s financial performance itself was solid: first-quarter revenue reached $640 million, a 34% year-over-year increase and above the $622 million analysts had predicted. Adjusted earnings per share came in at $0.25, also topping forecasts.
CEO Matthew Prince revealed that internal AI usage at Cloudflare skyrocketed more than 600% over the past three months, with thousands of AI agent workflows now integrated into daily operations. Management emphasized that this restructuring is a long-term operational evolution rather than simple cost-cutting. However, the market remained cautious, especially after softer revenue guidance for the current quarter. The company forecast second-quarter revenue between $664 million and $665 million, slightly below analyst expectations.
The layoffs are part of a broader trend across the tech industry as companies realign their operations around artificial intelligence and automation. Amazon has trimmed roles in cloud computing, devices, and media while boosting spending on generative AI infrastructure. Microsoft has reduced positions in several divisions while redirecting billions toward AI data centers and products tied to OpenAI technology. Meta and Coinbase have also announced workforce reductions in recent months, emphasizing efficiency and AI-focused restructuring. Industry data shows more than 93,000 technology jobs have been cut globally so far in 2026, with automation and AI adoption increasingly influencing hiring decisions.
Despite the sell-off, Cloudflare maintained its full-year outlook. The company reaffirmed projected 2026 revenue between $2.805 billion and $2.813 billion and forecast earnings per share of $1.19 to $1.20. Management believes expanding AI integration across operations will improve efficiency and accelerate product delivery. The market reaction, however, underscored lingering uncertainty about aggressive AI-driven restructuring strategies in the tech sector.