Cloudflare claims that AI made 1,100 jobs redundant, even as costs increased

Cloudflare on Thursday joined a growing list of tech companies — including Meta, Microsoft, and Amazon — that have reported revenue increases along with significant layoffs, citing the use of AI.

Cloudflare, which provides internet security and hosting services to millions of websites around the world, has announced that it is reducing its workforce by about 20%, which equates to 1,100 people, it said on Thursday as part of its earnings for the first quarter of 2026.

“We’ve never done anything like this in Cloudflare’s history,” co-founder and CEO Matthew Prince said he said On Thursday’s quarterly earnings call, it marked the company’s first layoff in 16 years. The company is cutting people from all sectors and all regions except the sellers who carry cash, CFO Thomas Seifert explains in detail on the call.

News of staff shortages came as a company report revenues totaled $639.8 million, a 34% year-over-year increase and the single largest quarter in company history. However, this was combined with a loss of $62.0 million compared to a loss of $53.2 million in the previous year.

The widening losses, even as revenues increase, reflect a familiar paradox in Cloudflare’s story: the company is growing rapidly but has yet to achieve sustainable profitability. But the loss was a small amount, and the quarter was accompanied by many other positive signs. For example, Cloudflare reported that it had more than $2.5 billion in “backlogs,” a year-over-year growth of 34%. RPO is the preferred metric these days to show how much money is in the contract but not delivered.

Therefore, Prince insisted, the 20% reduction was not a cost reduction but was due to the use of AI.

“Today’s action is not about cost reduction or performance monitoring; it’s about Cloudflare defining how a world-class company operates and creates value in the AI ​​era,” Prince and Cloudflare co-founder and COO, Michelle Zatlyn, he wrote in a blog post about layoffs.

Prince admitted on the call that while Cloudflare has been selling AI-powered products, it was initially cautious about adopting AI itself.

“Inside, the peak was last November. At that time, in all our teams, we started to see great productivity, team members who were two, 10, even 100 times more productive than before. It was like going from a handbook to an electric screwdriver,” he explained.

“Cloudflare’s AI usage has increased by 600% in just three months,” he said.

Prince highlighted how AI works, saying that almost the entire R&D team is now using the Worker platform – a tool that allows developers to create and run applications directly on Cloudflare’s global network – including its vibe feature. He added that 100% of the code generated this way and used in Cloudflare’s products “is now being reviewed by independent AI.”

But architects aren’t the only ones using AI internally, he said. “Employees across the company from engineering to HR to marketing spend thousands of AI sessions every day to do their jobs.”

As a result, the most productive, AI-powered workforce requires fewer employees, he said.

“A lot of the people who are helping people behind their backs, these roles aren’t the ones that, you know, drive companies forward,” Prince said.

Interestingly, Prince said that Cloudflare “will continue to hire people, and we will continue to raise money because the number of people using these tools is much higher than we’ve seen in the past.”

Cloudflare said it ended its first quarter before layoffs with about 5,500 employees.

The strategy that Prince described — touting the benefits of AI as reasons to downsize workers even in times of economic growth — is becoming commonplace across the tech industry. Whether it reflects a real structural shift or serves as a simple cover for cost control is a question that investors and workers have been grappling with for some time.

When asked by an analyst over the phone why the company needed to make deep cuts after such a good quarter, Prince said, “Just because you’re good enough doesn’t mean you can’t be good.”