Cloudflare stock declines amid AI hiring cuts impact updates

TLDR

• Cloudflare (NET) shares plunge 24.31% as AI-driven layoffs dampen investor sentiment.
• Despite surpassing Q1 estimates, the company’s 20% workforce reduction weighs on NET stock.
• NET declines after Cloudflare ties 1,100 job cuts to an AI-focused restructuring effort.
• Although Cloudflare lifts its 2026 outlook, weaker Q2 guidance pressures share prices.
• Robust Q1 revenue fails to offset market concerns following large-scale AI-related layoffs.

(SeaPRwire) –   Cloudflare (NET) stock tumbled sharply after announcing significant layoffs despite reporting stronger-than-expected first-quarter results. Shares traded at $194.36, down 24.31%, following a steep single-day decline driven by investor unease over AI-led restructuring and subdued near-term revenue projections.

Cloudflare, Inc., NET

Cloudflare Q1 Earnings Beat Wall Street Estimates

Cloudflare posted first-quarter revenue of $639.8 million, a 34% increase compared to the same quarter last year, exceeding Wall Street’s forecast of approximately $620.83 million. Adjusted earnings also came in above expectations at $0.25 per share versus the anticipated $0.23 per share.

The company also saw improved profitability during the quarter. Adjusted operating income climbed to $73.1 million, representing 11.4% of revenue. Free cash flow reached $84.1 million, or 13% of total revenue.

Demand remained robust across Cloudflare’s connectivity cloud offerings. However, revenue growth failed to accelerate for the first time in four quarters, adding pressure despite the earnings beat.

AI Layoffs Drive Market Selloff

Cloudflare announced it would eliminate over 1,100 positions globally, amounting to roughly 20% of its workforce. The company attributed the cuts to its transition toward an agentic AI-first operational model.

Leadership noted that internal use of AI tools surged more than 600% in the past three months, with thousands of AI agent workflows now integrated into daily operations. Nonetheless, the scale of the workforce reduction sparked a negative market response.

The company anticipates restructuring costs between $140 million and $150 million, with the majority expected to be recognized in the second quarter. Account executives will be excluded from the layoff plan, according to the company.

Softer Guidance Weighs on Cloudflare Stock

Cloudflare provided second-quarter revenue guidance of $664 million to $665 million, with the midpoint of $664.5 million falling just below analyst expectations of $666.1 million. This tempered outlook fueled worries about slowing near-term growth.

Nevertheless, the company raised its full-year earnings forecast, now projecting adjusted earnings of $1.19 to $1.20 per share—above Wall Street’s estimate of around $1.13 per share.

Full-year 2026 revenue guidance was also increased, with Cloudflare now expecting between $2.805 billion and $2.813 billion. Still, the sharp drop in share price indicated that the layoff announcement overshadowed the stronger annual outlook.

Cloudflare’s restructuring aligns with a broader trend in the technology sector, where major firms are cutting staff while ramping up investments in automation and AI infrastructure. As such, the company’s results underscore both the growth potential and workforce challenges associated with AI adoption.