Cloudflare’s latest financials saw the web giant lay off 20 percent of its workforce in a pivot toward both a stronger AI and network security market proposition.

The firm reported $640 million in revenues for the first quarter (Q1) of its fiscal 2026, representing a 34 percent Year-on-Year (YoY) increase. Despite the boon, Cloudflare will cut 1,100 jobs at a cost of up to $150m, consisting mainly of cash expenditures.

In a blog announcing the layoffs, CEO Matthew Prince and co-founder and president Michelle Zatlyn promised packages for those affected would include the equivalent of their full base pay as well as support for health care through the end of 2026.

According to LinkedIn posts seen by SDxCentral, Cloudflare's job cuts hit talent in the marketing, customer success, program growth, and research and development departments. Cloudflare also made some security cuts, with at least one redundancy in its zero-trust engineering team, as well as its security intelligence unit.

In their joint message, Cloudflare leaders claimed employees across the business run “thousands” of AI agent sessions daily, with AI usage increasing by 600 percent in the last quarter. This inspired an agentic AI-led restructuring to “supercharge” value for customers.

Prince elaborated further in the company earnings call, claiming that Cloudflare has “always lived a little bit in the future” and that others would soon see the productivity gained from AI agent use.

“We have seen that there are roles at Cloudflare that are not the roles we need for the future,” Prince said. “Just because you are fit does not mean you cannot get fitter. Over the last six months, especially, the productivity gains from the people directly talking to customers and directly creating code have been incredible, and a lot of the support roles behind them are not going to be the roles that drive companies going forward.”

Prince added the company would likely hire more people in 2027 than at any point this year, with a focus on hiring talent familiar with agentic AI software.

Security flare

While Cloudflare may have made some cuts to its security staff, the firm touted wins with its zero-trust and security access service Edge (SASE) offerings. One Fortune 500 aerospace and defense company expanded its Cloudflare deal with the signing of a three-year, $5 million contract for its zero trust products, including Browser Isolation, Access, and Gateway.

A major insurance company in EMEA similarly expanded its relationship with Cloudflare, committing to a five-year $5.1 million contract for application services as well as the full Cloudflare SASE portfolio.

Going back to the agent well, Prince touted Cloudflare’s zero trust and SASE opportunity in the AI era, with such security tools gaining prominence to ensure automated agents only make actions where and when they are permitted to do so.

“That will be a bigger tailwind to that space,” Prince said. “We will not be the only one there, but the principles that forward-leaning companies adopted previously will become much more standard, especially with what people are doing with things like open-source LLMs (large language models). It is amazing how, because we have a self-service version of our zero trust products, as people experiment with those models, they need fine-grained data control, and we are basically the only game in town to deliver it.”

Prince also questioned the longevity of players like Palo Alto Networks when discussing Cloudflare's efforts to displace legacy hardware on the network security side.

“The hardware companies seem to have nine lives – I do not know how many more they have to use. When there are vulnerabilities in hardware – as we saw at Palo Alto – and supply chain shortages, especially around memory, all of that pushes more people to evaluate that they need at least some part of the cloud as part of their infrastructure," Prince said. "I have been impressed by how long the hardware players have continued to operate and hold out, so I am not calling a complete change right now. But cloud continues to show its resilience, and all of these things are tailwinds behind our business and other cloud-native businesses.”

The Cloudflare exec also talked up the sovereignty opportunity, saying his firm was “uniquely positioned for a world with increasing regulatory – or even practical – requirements around keeping data in particular jurisdictions.”

AI self-service at Cloudflare

The CEO also revealed that Cloudflare is steadily matching its graphics processing unit (GPU) utilization with its central processing unit (CPU) utilization, somewhere in the 70 percent to 80 percent range, which is helping to meet servicing requests with its current fleet and “invest behind demand instead of ahead of demand.”

Prince also explained how Cloudflare is handling its sixfold AI usage internally, saying that while token costs have gone up, this has been abated by “very good relationships” with the big AI names, as well as leveraging LLMs and coding tools on its own infrastructure, running routes using its AI Gateway tool.

“If we have a task we can evaluate as relatively simple, we can route it to a model running on our own infrastructure and deliver it at essentially no marginal cost. If it is more important, we might send it off to a frontier model and pay more for that. … I think you will see many companies do this," Prince said.

“We already [offer] a stripped-down version with AI Gateway, but you might see us increasingly take some of the tools we have built internally and make those available to other companies. If you are paying us more, we give you a faster, better experience than if you are paying less. At some level, Cloudflare has always been a giant scheduler – effectively dispatching jobs across the network and prioritizing based on importance.”