On May 7, 2026, Cloudflare announced its best financial quarter in 16 years while simultaneously telling 1,100 employees that their positions no longer existed. The company blamed its own artificial intelligence for the decision.
Cloudflare's first-quarter revenue reached $639.8 million, growing 34% year-over-year and beating Wall Street expectations. Despite this success, co-founders Matthew Prince and Michelle Zatlyn decided to reduce the workforce by more than 20%, from approximately 5,156 to around 4,056 employees.
The company explained that it was restructuring to operate effectively in the "agentic AI era." Agentic AI refers to software that makes decisions and completes tasks independently, rather than simply answering questions. Inside Cloudflare, internal AI usage grew more than 600% in just three months.
Employees across engineering, finance, marketing, and HR now use AI agents daily. The layoffs affected workers globally in North America, Europe, Asia-Pacific, and Latin America.
The severance package was generous. Affected employees will receive full base pay through the end of 2026, with healthcare coverage maintained. However, Cloudflare estimated total restructuring costs between $140 million and $150 million.
Interestingly, investors reacted negatively. Cloudflare's stock fell more than 20%. Other major technology companies announced similar cuts that week, each citing smaller teams and increased AI as reasons for the changes.