Cloudflare beat earnings, cut 1,100 jobs because AI agents do the work now, and lost a quarter of its stock price in a day

Cloudflare beat Wall Street’s revenue and earnings estimates on Wednesday, announced it would cut 1,100 employees because artificial intelligence agents now do their work, and watched its stock fall 24 per cent on Thursday. The sequence is becoming the template for the technology industry in 2026: record revenue, record layoffs, record doubt about what comes next.

First-quarter revenue was 639.8 million dollars, up 34 per cent year over year, beating the consensus estimate of 622 million. Adjusted earnings per share were 25 cents against expectations of 23 cents. Free cash flow was 84.1 million dollars. The company added a record number of customers paying more than five million dollars per year and saw a 73 per cent year-over-year increase in deals worth more than a million. By every traditional metric, the quarter was strong.

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Then the company said it was eliminating one in five jobs.

The model

CEO Matthew Prince and co-founder Michelle Zatlyn announced in a blog post that Cloudflare is transitioning to what they called an “agentic AI-first operating model.” The company said its internal use of AI had increased more than 600 per cent in three months. Staff across engineering, human resources, finance, and marketing are running thousands of AI agent sessions per day. The framing was not that AI would assist employees. It was that AI has made certain categories of employee unnecessary.

Prince was specific about which roles are disappearing. “A lot of the support roles” behind customer-facing and engineering staff “are not going to be the roles that drive companies going forward,” he said. The language distinguished between people who build the product, people who sell the product, and people who support the people who build and sell the product. The third group is being replaced.

GitHub froze new Copilot sign-ups last month because agentic AI workflows were generating costs that exceeded what users paid, a signal that the economics of AI tools are not yet stable. Cloudflare’s bet is that the instability is temporary and that the productivity gains from running thousands of AI agent sessions per day will more than offset the cost of eliminating 1,100 human roles and paying 140 to 150 million dollars in restructuring charges.

The numbers

The financial results that accompanied the layoff announcement were not the results of a company in distress. Cloudflare now has 4,416 customers paying more than 100,000 dollars per year. It estimates that approximately 80 per cent of leading AI companies use its products. Its Workers developer platform, which runs code at the edge of Cloudflare’s network across data centres in 330 cities, is positioned as infrastructure for the AI agent economy the company says is replacing the roles it just eliminated.

Full-year revenue guidance was 2.805 to 2.813 billion dollars, narrowly beating the consensus estimate of 2.8 billion. Full-year adjusted earnings guidance was 1.19 to 1.20 dollars per share, ahead of the 1.14 expected. Prince called AI “the biggest tailwind we’ve ever seen in Cloudflare’s history” and said the re-platforming of the internet around AI agents represents the company’s largest growth opportunity.

The stock market disagreed, or at least disagreed with the timing. Shares fell 24 per cent on Thursday, erasing billions in market capitalisation. The sell-off reflected not the earnings, which were strong, but the uncertainty about whether a company that just fired 20 per cent of its workforce can execute a business model transition while maintaining the growth trajectory investors had priced in.

The cuts

The 1,100 affected employees will receive base pay through the end of 2026, continued healthcare coverage through year end in the United States, and equity vesting extended to 15 August 2026. The restructuring is expected to be substantially complete by the end of the third quarter. Prince said, “Today is a hard day.”

The company’s headcount will fall from approximately 5,156 to around 4,000. The restructuring charges of 140 to 150 million dollars break down to 105 to 110 million in cash severance and benefits and 35 to 40 million in non-cash equity-related expenses. The savings are projected at a pace that Cloudflare expects to reinvest into the AI infrastructure and hiring it says will drive the next phase of growth.

Cloudflare framed the cuts as structural rather than cyclical. This is not a company reducing headcount because revenue is declining. Revenue grew 34 per cent. This is a company reducing headcount because it believes the work those employees performed is now performed by software. The distinction matters because it implies the jobs are not coming back.

The pattern

Meta and Microsoft between them cut 23,000 jobs while simultaneously increasing AI spending by tens of billions of dollars. Oracle eliminated up to 30,000 positions to fund AI data centres. Atlassian cut 1,600 in the name of AI adaptation. The tech sector has recorded more than 73,000 job cuts across 95 companies in the first four months of 2026, with projections that the full-year total will exceed the 124,000 eliminated in all of 2025.

Cloudflare’s announcement is notable because it was the most explicit in attributing the layoffs to AI replacing human work rather than AI requiring capital reallocation. Meta’s Zuckerberg said the layoffs were about freeing capital for AI infrastructure. Cloudflare’s Prince said the layoffs were about AI doing the work. The difference is between “we need your salary to buy GPUs” and “we no longer need you because the GPUs are doing your job.”

The human cost of the AI layoff wave is accumulating at a pace that the industry’s growth metrics do not capture. Google is turning Chrome into an agentic AI workplace tool, embedding AI capabilities directly into the browser that millions of knowledge workers use daily. ServiceNow projects 30 billion dollars in revenue by 2030, with a third of that coming from AI. The companies building the AI tools and the companies deploying them are both growing. The people whose work the tools replicate are not.

The tension

Cloudflare’s position is coherent but uncomfortable. The company reported its strongest quarter, told investors the AI opportunity is transformational, cut a fifth of its workforce to pursue it, and then saw a quarter of its market value disappear because investors were not sure the transformation would work. The 600 per cent increase in AI usage over three months is either evidence that the transition is already delivering results or evidence that the company is moving faster than it can manage.

Prince’s statement that certain support roles “are not going to be the roles that drive companies going forward” is a prediction about the entire industry, not just Cloudflare. If he is right, the 1,100 people losing their jobs at Cloudflare are early casualties of a restructuring that will reach every technology company and eventually every company that employs people to do work that AI agents can approximate. If he is wrong, Cloudflare just fired 20 per cent of its workforce during its best quarter, and the 24 per cent stock drop is the market’s way of saying so.

The earnings beat. The layoffs are real. The stock is down. The AI agents are running. The question Cloudflare cannot yet answer, and that no company in its position has answered, is whether a 600 per cent increase in AI usage produces a proportional increase in the value of the work, or whether it produces a proportional increase in the confidence that the work is being done without anyone checking whether it is being done well.