Cloudflare reported strong first-quarter earnings that beat Wall Street expectations for both revenue and profit, driven by 34% year-over-year revenue growth.

Despite the positive results, shares dropped sharply after the company announced it would cut about 20% of its workforce, or more than 1,100 jobs, citing the impact of AI on its operations.

CEO Matthew Prince said the shift to an “AI-first” model has fundamentally changed the company’s staffing needs and that some roles are no longer necessary.

Cloudflare also forecast solid revenue and earnings growth for the coming quarters and full year, slightly exceeding analyst expectations, CNBC has reported.

However, investor concerns over layoffs and restructuring overshadowed the upbeat financial performance.