Microsoft announced plans to cut approximately 4,800 jobs worldwide, representing about 2 percent of its global workforce, as part of a restructuring of its Xbox gaming division. The company aims to improve profitability following several years of significant investment in the gaming sector, including the $75 billion acquisition of Activision Blizzard in 2023.
The gaming division will be the hardest hit, with around 3,200 layoffs, including 1,600 occurring immediately and the remainder phased over the next year. The remaining 1,600 cuts will be made in Microsoft’s commercial division. Xbox chief executive Asha Sharma described the current business as “not healthy,” pointing to margins that are “3-10 times lower” than comparable platform and publishing companies.
The restructuring involves divesting up to five game studios. Four studios—Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs—will be spun off or become independent, allowing them to pursue growth outside Microsoft’s direct control. Additionally, management at Arkane Studios, currently developing a Marvel-based title, began consultations with its workers union in France to explore strategic options.
Despite Microsoft’s heavy investments aimed at expanding its Xbox Game Pass subscription service and competing with rivals such as Sony’s PlayStation and Nintendo, returns have fallen short of expectations. Sharma noted that Xbox lost 64 cents for every dollar invested in studios during a typical year, underscoring the financial challenges within the division.
Market analysts view the move as a portfolio adjustment rather than a direct response to artificial intelligence (AI) replacing jobs. Chief people officer Amy Coleman clarified that the eliminated roles “are not being replaced by AI,” although AI is influencing how work is conducted across the company. Microsoft and other major technology firms, including Amazon and Meta, have faced mounting pressure to demonstrate returns on large AI-related expenditures amid a significant industry-wide push into AI technologies.
Microsoft’s shares declined 1.4 percent in response to the announcement, continuing a downward trend with a 23 percent drop in the first half of 2026—its worst performance since 2022. Earlier in the year, Microsoft offered voluntary buyouts to about 9,000 employees in the United States, roughly 7 percent of its U.S. workforce.
The cuts come as Microsoft balances rapid growth in its Azure cloud computing division, energized by large-scale AI deployments, against rising operational costs. The company has forecast substantial spending of $190 billion in 2026, far exceeding market expectations. Additionally, rising memory chip prices driven by increased demand for data center infrastructure have led Microsoft to raise Xbox console prices, even as consumer demand for hardware remains subdued.
Overall, the workforce reduction and studio divestments reflect Microsoft's strategic shift to boost profitability within its gaming sector while continuing to invest heavily in AI and cloud services.