Jobs cuts related to increased AI usage have practically become background noise at this point, but there's still the occasional outlier that merits inspection. In this case, Cloudflare announced both its quarterly results and the fact that it's cutting 20% of its workforce over this year — to the tune of 1,100 heads.
Although Wall Street investors are usually amenable to job cuts, as they're generally seen as source of added short-term profit, this time around the market didn't react kindly at all, tossing Cloudflare's stock price down a cliff to the tune of a 19% drop in one day alone — nearly a 24% drop for the week. In a tweet, CEO Matthew Prince noted that "very few engineers or customer-facing sales people" are impacted by the layoffs, and that the firm wants to "continue to hire like crazy" for those roles.
The firm expects to take a $140-$150 million charge associated with the job cuts, and the soon-departed also ought to receive equity in the company as of their professional passing. The Q1 2026 results actually matched or beat both its revenue and Earnings Per Share (EPS) estimates — with a revenue of $639.8 million (up 34% year-over-year) and an adjusted EPS of $0.25 (beating the expectation of $0.23). Also, it's worth noting that Cloudflare is still up around 30% since the start of the year.
It's hard to pin down why investors are so disappointed, but perhaps the reason is that Cloudflare issued Q2 2026 guidance stating that its revenue will be around $644.5 million — a figure described as "just shy" or "below" estimates, thus displaying a lack of growth. Stockholders may have gotten the impression that the company needed the job cuts for financial growth in this environment, but, as the old adage says, markets will do market things.
As befits any harsh breakup, Cloudflare's management sent out a long message to employees detailing the why and how of the move. The company claims it increased the usage of AI "by more than 600% in the last three months alone," noting that most every part of the company runs "thousands of AI agent sessions" daily. Thus, Cloudflare believes it "[has] to be intentional in how we architect our company for the agentic AI era," and notes that the decision is "is not a reflection of the individual work."
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