Shares of internet infrastructure company Cloudflare (NET) plunged over 20% on Friday despite reporting strong first-quarter earnings that beat profit expectations. The sell-off, which drove the stock down to $194.36, was triggered by investor concern over the company’s announcement of significant layoffs and its shift toward an AI-focused operating model, which overshadowed positive financial results and an improved annual outlook.
Shares in internet tech company Cloudflare (NET) dropped over 20% on Friday despite the firm posting a strong Q1 earnings report. The stock traded as low as $194.36, down 24.31%, after a steep one-day selloff.
The fall reflects market concern over AI-led restructuring and softer near-term revenue guidance. The tech giant’s projected revenue for the current quarter came in between $664 million and $665 million, below Wall Street’s $666.1 million estimate but up 34% from the same period last year.
Adjusted earnings reached $0.25 per share, beating expectations of $0.23 per share. Cloudflare also improved profitability during the quarter, with adjusted operating income rising to $73.1 million and free cash flow reaching $84.1 million.
Despite the good numbers, the reason why NET investors panicked was a newly announced wave of layoffs. Cloudflare announced plans to cut more than 1,100 jobs worldwide, equal to about 20% of its global workforce.
The company linked the move to its shift toward an agentic AI-first operating model. The move capped off a week of several top companies issuing layoffs, including crypto exchange Coinbase (COIN).
Furthermore, the company expects restructuring charges between $140 million and $150 million. Most of those costs should appear in the second quarter, which could mean heavy capex going towards AI initiatives.
Still, Cloudflare raised its full-year earnings forecast, now expecting adjusted earnings of $1.19 to $1.20 per share. That range stands above Wall Street expectations of about $1.13 per share.
Full-year revenue guidance also moved higher, with Cloudflare expecting 2026 revenue between $2.805 billion and $2.813 billion. Even so, the sharp stock decline showed that the layoff news outweighed the stronger annual outlook.
