Microsoft announced it will cut approximately 4,800 jobs, representing about 2.1% of its workforce, as part of a restructuring effort focused on its commercial and Xbox divisions. The move comes amid a broader industry shift toward artificial intelligence (AI) investments, which has prompted several major technology companies to reduce staff in order to realign resources and control costs.
The company revealed the layoffs on Monday, following a nearly 23% decline in its share price during the first half of 2026, marking the weakest six-month performance since 2022. Microsoft's earlier voluntary buyout offer targeted around 7% of its U.S. workforce—roughly 9,000 employees—as it sought to adjust headcount ahead of the new fiscal year.
Chief People Officer Amy Coleman emphasized in an internal memo that AI’s evolving role in automating routine tasks is changing workplace dynamics but clarified that the recently eliminated roles are not being replaced by AI technologies. She framed the layoffs as part of a broader effort to align the company’s operational structure with its strategic priorities.
The cuts come as Microsoft and other tech giants, including Amazon and Meta Platforms, navigate the challenges of scaling AI infrastructure. Industry-wide AI investments are projected to exceed $700 billion this year, increasing pressure on companies to demonstrate returns and contain the associated costs. While Microsoft’s Azure cloud-computing business has benefited from strong AI demand—earning exclusive sales rights to OpenAI models until April—the rapid expansion of data centers needed to support AI has strained cash flows.
Analysts note that by managing workforce size, Microsoft has aimed to sustain revenue growth and maintain margins despite rising expenditures. However, the surge in memory chip prices linked to data center demand has forced Microsoft to raise Xbox console prices amid softening customer demand. Asha Sharma, recently appointed head of the Xbox division, described the business as needing a “reset” due to a significant decline in profit margins, which currently stand at about 3%.
Sharma highlighted ongoing investments exceeding $20 billion in content, platform, and hardware subsidies over the past five years, while annual Xbox revenues in that period have fallen by nearly half a billion dollars. To address this, Microsoft is reportedly exploring options such as restructuring Xbox as a wholly owned subsidiary or potentially pursuing a spinoff.
The company is expected to release its quarterly earnings report later this month, offering additional insights into its financial performance and outlook amid these transitions.