Cloudflare: AI Disrupts Jobs, But Why?

Cloudflare Reduces Workforce Despite Record Sales

Matthew Prince, the CEO of Cloudflare, has recently made the decision to cut more than 20% of his company's workforce, despite sales reaching record levels. According to Prince, this decision is driven by the evolution of artificial intelligence (AI) systems that are beginning to replace certain roles, particularly those related to middle management, administration, and compliance.

To justify these layoffs, Prince relies on a work classification model inspired by the renowned management theorist, Peter Drucker. This model divides employees into three categories: builders, sellers, and evaluators. The first two categories, builders and sellers, are considered essential and continue to be hired. In contrast, evaluators, who are responsible for monitoring and controlling compliance processes, see their positions threatened by AI.

A Controversial Strategy

However, some financial analysts and industry experts believe that this explanation could be an example of "AI washing." In other words, using AI as a justification for workforce reductions might mask more traditional reasons, such as operating losses, shrinking profit margins, and high infrastructure costs. These factors suggest that Cloudflare could simply be following a classic efficiency program after a period of aggressive hiring.

In an op-ed published in the Wall Street Journal, Prince emphasized that Cloudflare continues to post record revenues, a solid free cash flow, and a growing number of new customers. Despite this, he chose to reduce the workforce to prepare the company for what he describes as a "business shift" in the age of AI.

A Management Model Inspired by Peter Drucker

Prince's management model, based on Peter Drucker's book "The Practice of Management" published in 1954, divides roles into three distinct categories:

• Builders: those who develop products.
• Sellers: those who close deals.
• Evaluators: those who supervise and control, including functions like internal auditing and middle management.

Prince stated that the majority of layoffs would affect evaluators. According to him, AI now allows each manager to oversee a greater number of direct reports without losing control of their teams. Operations have been centralized into a single group supporting the entire company, with AI providing specific expertise. Marketing, described by Prince as "filled with evaluators," has undergone significant cuts, as has finance, which has become more automated.

Builders and Sellers Safe

For Prince, builders and sellers are shielded from AI-related layoffs. He believes that an engineer whose productivity is multiplied tenfold by AI is a valuable asset, justifying continued hiring in this area. Sellers, on the other hand, remain indispensable as budgetary decisions are still made by humans who prefer to interact with other humans to build trust.

Evaluators, however, are the most impacted by AI. Prince explains that AI, tireless and independent, can now measure an organization with unmatched precision and detail, even surpassing the best human employees.

Despite the layoffs, Prince insists that Cloudflare continues to grow and hire. The company has a record number of open positions, and the reduction of evaluators allows for greater investment in areas that promote growth.

AI as a Scapegoat?

Prince's statements raise questions about the phenomenon of "AI washing." Cloudflare may be using AI as a pretext to justify layoffs that are actually driven by traditional financial pressures. Several indicators point in this direction.

Cloudflare announced a 600% increase in internal AI usage in just three months, according to a blog post. However, this increase does not prove that AI is actually replacing the work of over 1,100 employees.

Cloudflare's financial results paint a less optimistic picture than the one presented by Prince. In the first quarter of fiscal 2026, revenues increased by 34% to reach $639.8 million, but the company recorded an operating loss of $62 million. The gross margin fell from 75.9% to 71.2%. Although Cloudflare is experiencing strong growth, it is struggling to generate profits and retains a smaller share of each dollar earned, which justifies a reduction in labor costs.

According to Reuters, Cloudflare's stock dropped by more than 15% following the release of its latest financial results. Slower growth forecasts and AI-related infrastructure costs have weighed on margins. The analysis firm Morningstar noted that Cloudflare is trading salaries for higher infrastructure costs and amortization to protect its profitability.

Cloudflare's annual report for 2025 (10-K) suggests a simpler explanation: the company has overhired in the past. The number of employees rose from 3,682 at the end of 2023 to 5,156 at the end of 2025, marking a 40% increase in two years. Cloudflare itself acknowledged that this rapid growth has strained management, administration, operations, and finances.

A Widespread Phenomenon in the Industry

This situation is not unique to Cloudflare. Other companies have also used the argument of AI to justify workforce reductions. For example, Jack Dorsey, founder of Block, laid off nearly half of his staff, claiming that AI allowed smaller teams to operate more efficiently. However, Dorsey later admitted that Block had simply overhired during the pandemic.

Similarly, companies like Glassdoor have reduced their workforce, stating that AI made the hiring process more efficient and reduced manual labor, without providing concrete evidence to support these claims.

Ultimately, while AI may offer real efficiency gains, its use as a justification for mass layoffs raises questions about the true motivations of companies and how they communicate these decisions to their employees and the public.