Cloudflare Sheds 1,100 Jobs in Radical AI Restructuring, Stock Tumbles

Cloudflare is embarking on a dramatic overhaul, cutting roughly one in five positions as it pivots toward an AI-first operating model. The cybersecurity specialist announced plans to eliminate approximately 1,100 roles—about 20 percent of its global workforce—in a move management describes as a necessary reset toward automated, AI-driven operations.

The restructuring comes with a hefty price tag. Cloudflare expects to incur between $140 million and $150 million in charges, with the bulk of those costs hitting in the second quarter of 2026. Affected employees will receive salary continuations through year-end.

The internal transformation is already well underway. Some 97 percent of the company's engineers now use AI assistants for coding, and internal AI usage has surged sixfold over the past three months alone. The platform has also added 1 million AI developers, bringing its total user base to 5.5 million.

First-quarter results painted a picture of solid operational momentum. Revenue jumped 33.5 percent to $639.8 million, comfortably ahead of analyst expectations of roughly $622 million. Adjusted earnings per share came in at $0.25, also beating consensus estimates. The number of large enterprise customers—those generating six-figure annual revenue—grew 25 percent to 4,416 accounts, and this cohort now accounts for 72 percent of total revenue.

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Yet beneath the top-line strength, margins are shrinking. Gross margin slipped to 72.8 percent from 77.1 percent a year earlier, weighed down by a shifting traffic mix and stepped-up investment in the developer platform.

Investors focused squarely on the margin pressure and the aggressive restructuring plan. The stock shed more than 24 percent on Friday, falling to €164.55—well below its 50-day moving average of €175.78. The sell-off erased gains that had been fueled by earlier enthusiasm around Cloudflare's AI infrastructure ambitions.

The outlook for the current quarter also disappointed. Cloudflare guided for second-quarter revenue between $664 million and $665 million, falling short of analyst hopes. For the full year 2026, management projects revenue of up to $2.813 billion and adjusted earnings per share in a range of $1.19 to $1.20.

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CEO Matthew Prince is betting that the painful restructuring will position Cloudflare for long-term success as an AI agent-focused infrastructure provider. The next major test of that strategy comes with second-quarter results, when investors will be watching closely for signs that the pivot is gaining traction.

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