Microsoft Cuts 4,800 Jobs Including 20% of Xbox Staff Amid AI Era Cost-Cutting

Microsoft announced it is eliminating 4,800 jobs, representing 2.1% of its workforce, as part of a broader cost-cutting effort in the artificial intelligence era. The Xbox division will bear the brunt of the layoffs, losing 3,200 employees by fiscal year 2027, with 1,600 positions cut immediately. Xbox CEO Asha Sharma acknowledged the year-long restructuring process will be challenging but necessary. A source familiar with the matter confirmed these cuts amount to about 20% of Xbox staff.

This announcement follows Microsoft’s recent decision to raise Xbox console prices by up to $150 due to rising component costs, with memory prices having more than doubled and expected to continue increasing through 2027. The layoffs come amid Microsoft’s stock falling 20% since early 2026, the weakest among major tech companies, driven by investor concerns over the uncertain impact of generative AI on enterprise software and the company’s AI offerings not yet proving highly successful.

Microsoft has previously conducted layoffs, including 9,000 job cuts last year. While cloud services and LinkedIn have shown growth, other areas like Windows licenses, Surface devices, and Xbox gaming are experiencing revenue declines. As part of the restructuring, four game studios will be spun off or sold, including Compulsion Games and Double Fine Productions returning to independence, and Ninja Theory and Undead Labs moving toward new ownership. The French studio Arkane is in discussions with its union about strategic options.

In April, Microsoft introduced a voluntary retirement program for U.S.-based employees at director level and below, with over a third of eligible workers accepting. HR chief Amy Coleman emphasized the company’s commitment to minimizing layoffs and adapting to AI-driven changes, noting that AI is automating some tasks but not directly replacing laid-off employees. She stressed the need for continuous learning and skill development as work evolves, aligning with customer expectations for AI transition support.