Microsoft Cuts 4,800 Jobs Amid AI Shift and Xbox Restructuring

Microsoft announced on Monday a reduction of approximately 4,800 jobs, representing about 2.1% of its workforce. This move is part of a broader reorganization within its commercial divisions and Xbox unit, aiming to redirect investments toward artificial intelligence (AI) infrastructure. The announcement follows a nearly 23% drop in Microsoft’s stock price during the first half of 2026, marking its worst six-month performance since 2022. Early trading saw shares fall an additional 1.5%.

The company’s decision reflects the intense pressure on tech giants to demonstrate returns on massive AI investments, which are expected to exceed $700 billion globally this year. Microsoft joins other major firms like Amazon and Meta, which have also laid off thousands of employees for similar reasons. In an internal memo, Microsoft’s Chief Human Resources Officer Amy Coleman explained that AI is transforming work by automating routine tasks, but emphasized that the current layoffs are part of a larger effort to realign resources and operational structures with the company’s priorities. She clarified that the eliminated roles are not being replaced by AI, though AI is changing work processes.

Earlier this year, Microsoft offered a voluntary retirement program to about 7% of its U.S. workforce, roughly 9,000 employees. The company typically reduces staff near the end of its fiscal year in June when setting budgets. Microsoft is expected to report its financial results later this month, having forecasted Azure sales above Wall Street estimates but also projecting a staggering $190 billion in expenses for 2026, far exceeding market expectations.

The rise in memory chip prices, which dampened demand for data centers, forced Microsoft to raise Xbox console prices amid already weak market demand. The Xbox gaming division is undergoing a comprehensive restructuring. Division head Asha Sharma recently described the need for a "reset," noting profit margins have shrunk to just 3%. This reorganization could involve mergers or acquisitions. Sharma also highlighted that despite over $20 billion invested in content, platforms, and hardware subsidies over five years (excluding Activision Blizzard King), annual revenues have declined by nearly half a billion dollars, a trend the company cannot sustain. Microsoft is seriously considering options for the Xbox unit, including a potential spin-off or reorganizing it as a wholly owned subsidiary.