SAN FRANCISCO, May 8, 2026, 05:06 (PDT)
Cloudflare is laying off over 1,100 employees—about a fifth of its staff—while overhauling its business to focus on artificial intelligence. The company beat expectations for first-quarter earnings, yet its stock tumbled nearly 19% in after-hours trading. The reason? Cloudflare’s revenue guidance for the second quarter missed the mark, coming in just shy of analysts’ estimates.
Timing is key here. Cloudflare isn’t only marketing AI—they’re leaning into it internally. CEO Matthew Prince and President Michelle Zatlyn pointed out a spike: internal AI use shot up over 600% in just three months. Employees are running thousands of AI agent sessions daily. This “agentic AI” software handles multi-step work, often with minimal human direction. The Cloudflare Blog
Now, investors are left wondering: are these cuts a sign of durable productivity improvements, or is AI simply masking deeper operational issues? Cloudflare shares had been up 30.3% for the year ahead of Thursday’s after-hours drop, according to Reuters, so there wasn’t much patience for a revenue outlook that came up just short.
Cloudflare disclosed in a regulatory filing that it’s anticipating $140 million to $150 million in charges related to its recently announced plan—largely from severance, notice periods, employee benefits, and share-based awards. Most of those costs will likely hit in the second quarter, the company said, with the plan expected to be largely wrapped up by the end of the third quarter.
Cloudflare’s first-quarter revenue jumped 34%, hitting $639.8 million. The company posted a GAAP operating loss of $62.0 million, but on an adjusted basis, operating income reached $73.1 million. Cloudflare’s adjusted (non-GAAP) results strip out certain costs not considered part of its main business.
Cloudflare is looking for second-quarter revenue to land between $664 million and $665 million, and expects to post adjusted net income of 27 cents per share. The company set its 2026 targets at $2.805 billion to $2.813 billion in revenue, with adjusted earnings of $1.19 to $1.20 per share.
Prince called AI “the biggest tailwind” Cloudflare has ever seen, and noted that agents are now woven into the company’s workforce. Bold words. The stock didn’t follow. Cloudflare
Cloudflare’s founders told staff the layoffs weren’t about cutting costs or reflecting on anyone’s performance. Instead, they said, the company is overhauling its processes, teams, and job structures as it shifts to an AI-first model.
In a staff memo, the founders said those leaving will keep getting their base salary until the end of 2026. Healthcare coverage for U.S. staff runs through the end of this year. Equity vests through August 15, with prorated vesting for anyone who hadn’t hit their one-year cliff.
Not all names in the sector reacted the same way. Akamai Technologies jumped 24% after hours that day, following its announcement of a $1.8 billion long-term cloud agreement with a frontier AI model provider. The move signals investors still put a premium on AI-related infrastructure deals when backed by firm contracts.
But there’s room for things to go sideways. In its filing, Cloudflare warned that real costs might not match projections and pointed to risks that AI and automation may fall short for workers, customers, innovation, or the business as a whole.
Execution is up next. Cloudflare faces a hefty restructuring charge, needs to hold revenue growth close to guidance, and has to show that trimming headcount—offset by more AI agents—won’t bog down the product and sales push that fueled last quarter’s results.
