Microsoft to cut 4,800 jobs as Xbox overhaul hits 3,200 roles

Microsoft said on Monday it will cut 4,800 jobs, or about 2.1% of its global workforce, as the company restructures its Xbox gaming business and looks to improve returns after years of heavy investment.

The gaming division will account for 3,200 of the job cuts, including 1,600 employees laid off on Monday.

The restructuring comes after Microsoft spent tens of billions of dollars to expand Xbox, including its acquisition of Activision Blizzard, but has continued to face strong competition from Sony’s PlayStation and Nintendo.

Microsoft has also been shifting its gaming strategy towards making its titles available across more platforms instead of relying mainly on console-exclusive games to support Xbox hardware sales.

Xbox’s new head, Asha Sharma, told employees that the restructuring will include the divestment of four studios.

Compulsion Games, producer of “South of Midnight”, and Double Fine Productions, maker of “Psychonauts”, will become independent studios.

Ninja Theory and Undead Labs will be spun off to develop “Senua” and “State of Decay 3”, respectively.

Sharma said the management of Arkane Studios, which developed “Dishonored” and is working on a game based on Marvel Comics character Blade, has started consultations with its workers’ union in France to review options.

Microsoft said the eliminated roles are not being replaced by artificial intelligence.

Chief People Officer Amy Coleman told employees that while the roles being cut are not being replaced by AI, the technology is changing how work is done.

The layoffs come as major technology companies face pressure to show returns on large AI investments. Big Tech’s AI spending is expected to exceed $700 billion this year.

Amazon and Meta Platforms have also cut thousands of jobs this year.

Parth Talsania, CEO of Equisights Research, said the announcement looked more like portfolio reallocation and operating discipline than a fresh catalyst for Microsoft’s stock.

He said investors were likely to focus more on whether AI monetisation is growing faster than AI-related costs than on headcount reductions.

Microsoft shares were down 1.4% on Monday.

The stock had fallen nearly 23% in the first six months of 2026, its worst first-half performance since 2022.

Earlier this year, Microsoft offered voluntary buyouts to about 7% of its US workforce, or around 9,000 employees.

The company often trims jobs near the end of its fiscal year in June as it prepares spending plans for the next year.

Gil Luria, managing director of D.A. Davidson, said Microsoft had been reducing headcount to help fund AI investments while maintaining margins.

Microsoft’s Azure cloud business has benefited from strong AI demand and was the exclusive seller of OpenAI’s models until April.

However, the cost of building data centres to support AI services has increased pressure on cash flows.

Microsoft, which is expected to report results later this month, forecast quarterly Azure sales above Wall Street estimates in April.

The company also issued a $190 billion spending projection for 2026, far above market expectations.

AI tools that can automate routine business tasks are also emerging as a risk for Microsoft’s software business.

At the same time, higher memory chip prices driven by data centre demand have pushed Microsoft to raise Xbox console prices when demand for the console was already soft.