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Microsoft said Monday it would cut 4,800 jobs, or about 2.1 percent of its global workforce, as part of a restructuring that includes restructuring its Xbox games business and laying off up to five studios. The company is looking to increase profits after years of heavy investment in the sector.
The restructuring of the sports division will involve 3,200 job cuts, including 1,600 layoffs on Monday.
Despite spending tens of billions of dollars to grow Xbox, including its blockbuster acquisition of Activision Blizzard, Microsoft has struggled to close the gap with Sony's PlayStation and Nintendo, prompting a rethink of its gaming business.
The company has largely shifted its strategy to distributing its games across platforms rather than relying on exclusive titles to drive Xbox hardware.
Xbox's restructuring will include the shedding of four studios, the division's new head, Asha Sharma, said in a letter to employees.
Based in Montreal South of Midnight Manufacturer of Force Games and The Psychonauts the maker of Double Fine Productions will be independent studios. Ninja Theory and Undead Labs will be used for future development Senua again State of Decay 3 games in a row, said Sharma.
Management at Arkane Studios, which developed It is disgraced is also working on a game based on the Marvel Comics character Blade, has begun consulting with its union in France to review options, he added.
“Our business today is not healthy,” Sharma said in the memo. “We operate at three to 10 times lower margins than the same platform and publishing businesses.”
In a statement posted on social media, Compulsion Games said it will retain the rights to its games, including its own South of Midnight.
“We're grateful for the years we've spent with Xbox, the support they've given our team, and the opportunity to bring these games to players around the world,” it said. “The most important thing for us is to support our team during this time of change.”
A well-driven push driven by AI
Big Tech's historic spending on AI, which is expected to exceed $700 billion this year, increases the pressure on companies to demonstrate returns from the technology and reduce the growing costs of implementing it across their businesses. Amazon and Meta have also laid off thousands of workers this year.
Microsoft's chief people officer Amy Coleman, however, told employees that “the roles that are being eliminated today are not being replaced by AI.”
“At the same time, the reality is that AI is changing the way work is done.”
Tech giants Apple and Microsoft are raising prices on laptops and game consoles due to a global supply shortage of memory chips. Artificial intelligence companies are taking over key segments, driving up prices.
The target reduction “reads more like portfolio reallocation and proactive behavior than a new stock catalyst,” said Parth Talsania, CEO of Equisights Research, an investment research firm.
“In the near term, the market is likely to reward Microsoft a little bit by reducing the number of people and more to prove that the monetization of AI is growing faster than the costs associated with AI.”
Microsoft shares fell 1.4 percent on Monday after falling nearly 23 percent in the first six months of 2026, its worst first-half performance since 2022.
Earlier this year, the software giant offered voluntary buyouts to about seven percent of its US workforce, or about 9,000 workers. Microsoft typically cuts jobs at the end of its fiscal year in June as it sets spending plans for the new year.
“Microsoft has been managing its workforce to pay for its AI investments. By keeping its headcount low they have been able to accelerate profit growth while staying within the same limits,” said Gil Luria, managing director of US-based investment advisory firm DA Davidson.
The growing demand for AI has fueled the growth of Microsoft's Azure cloud-computing business, which was the exclusive vendor of OpenAI models until April. But the rising cost of building data centers to run those services is squeezing the company's cash flow.
Microsoft, which is expected to report its results later this month, predicted in April that Azure sales for the quarter would exceed Wall Street estimates. However, it also predicted $190 billion in spending by 2026, far exceeding expectations.
AI tools that can automate business tasks also pose a threat to Microsoft's profitable software business. Meanwhile, rising memory chip prices driven by data center demand forced Microsoft to raise Xbox console prices at a time when demand for the console had softened.
