San Francisco, May 7, 2026, 15:03 PDT
Cloudflare plans to lay off over 1,100 employees worldwide—roughly 20% of its staff—as it shifts toward an AI-first strategy, the company said Thursday. Shares dropped more than 13% in after-hours trading, following a second-quarter revenue outlook that landed just shy of Wall Street’s expectations.
Timing’s key here. Cloudflare isn’t only offering artificial intelligence tools to its clients—it’s rolling out AI across its own workforce and operations, a move that goes beyond the incremental productivity promises other software and cloud players floated this past year. The company’s announcement landed together with quarterly numbers—better than the same period last year, but still short of what investors wanted.
Cloudflare’s founders report a surge of over 600% in internal AI usage across just three months, with teams in engineering, HR, finance, and marketing generating thousands of AI agent sessions daily. These AI agents—software designed for multi-step tasks with minimal human input—are seeing heavy internal traffic.
Chief Executive Matthew Prince and co-founder Michelle Zatlyn informed employees the layoffs aren’t about trimming costs or linked to how anyone performed. According to the company, those leaving get base pay up to the end of 2026, U.S. healthcare covered through the year, and equity continues vesting until Aug. 15.
Cloudflare estimates it will rack up $140 million to $150 million in charges from the plan, according to a securities filing—most of it landing in the second quarter. Cash expenses, covering things like notice periods, severance, and benefits, should hit $105 million to $110 million, while non-cash costs tied to stock awards are pegged at $35 million to $40 million. The company aims to wrap up the plan by the end of the third quarter.
Cloudflare’s first-quarter revenue landed at $639.8 million, a 34% jump year-over-year. The company trimmed its GAAP net loss to $22.9 million from $38.5 million. Adjusted earnings—stripping out certain costs—were reported at 25 cents per share. Free cash flow for the quarter totaled $84.1 million.
Cloudflare is looking for revenue this quarter to land between $664 million and $665 million—just under the $665.3 million analysts surveyed by LSEG had called for, according to Reuters. For the full year, the company is guiding toward revenue of $2.805 billion to $2.813 billion, with adjusted earnings seen at $1.19 to $1.20 per share.
Prince, in the earnings release, described AI as “driving a fundamental re-platforming of the Internet”—and labeled it the biggest tailwind Cloudflare has ever seen. The company is pitching that transformation to investors, while working to prove it can reduce both costs and complexity in its own operations. SEC
Competition is heating up. On Thursday, Akamai posted Q1 revenue of $1.074 billion, disclosing that a U.S.-based frontier AI model provider agreed to a $1.8 billion, seven-year cloud infrastructure deal. Fastly, which also operates in edge cloud and security, logged record first-quarter revenue of $173 million just a day before. Its security revenue jumped 47%.
Execution is where things could go sideways. Cloudflare flagged in its filing that costs might end up higher than planned, and the anticipated gains from AI and automation could fall short—not just for employees, but for customers, innovation, and the business itself. Lopping off 20% of the workforce carries its own risks: product launches and sales might get squeezed if demand doesn’t align the way management is hoping.
