Cloudflare stock sinks 18% after earnings as company cuts 1,100 employees due to AI changes

Cloudflare has reported its first-quarter earnings, surpassing analysts' expectations, yet experienced a significant stock drop of 18% in after-hours trading. This decline coincided with the company's announcement of a plan to reduce its workforce by 20%, impacting more than 1,100 employees. CEO Matthew Prince addressed the decision during the earnings call, emphasizing that the rise of agentic artificial intelligence has fundamentally transformed the company's operations. Prince stated, "This wasn't an easy decision, but it's the right decision," noting that certain roles have become obsolete in light of the company's shift towards an AI-first operational model. Over the past three months, Cloudflare has seen a staggering increase of more than 600% in its AI utilization. In terms of financial performance, Cloudflare reported a year-over-year revenue growth of 34%. For the upcoming second quarter, the company anticipates revenue between $664 million and $665 million, which aligns closely with analysts’ expectations of $665 million. Additionally, their guidance for earnings per share stands at 27 cents, meeting Wall Street forecasts. Describing the growth of AI as the most significant driving force in the company's history, Cloudflare also provided a revenue forecast for the full year of 2026, estimating between $2.805 billion and $2.813 billion, slightly above analysts' expectations of $2.8 billion. They project earnings of $1.19 to $1.20 per share, surpassing the anticipated $1.14. However, it is noteworthy that Cloudflare reported a net loss of $22.93 million, or 7 cents per share, for Q1 2026, compared to a larger loss of $38.45 million, or 11 cents per share, from the previous year.