Microsoft said on Monday it will cut 4,800 jobs, or about 2.1% of its global workforce, while restructuring its Xbox gaming business and spinning off several game studios as the company seeks stronger returns after years of heavy investment.
The gaming division will account for 3,200 of the job cuts, including 1,600 employees who were laid off on Monday.
The move comes despite Microsoft’s multibillion-dollar expansion of Xbox, including its acquisition of Activision Blizzard. The company has struggled to close the gap with Sony’s PlayStation and Nintendo, prompting a strategic review of its gaming operations.
Microsoft has increasingly shifted its gaming strategy towards releasing titles across multiple platforms instead of relying on console-exclusive games to drive Xbox hardware sales.
According to an internal memo from Xbox chief Asha Sharma, the restructuring will involve divesting four studios.
Compulsion Games, the studio behind South of Midnight, and Psychonauts developer Double Fine Productions will become independent companies. Meanwhile, Ninja Theory and Undead Labs will be spun off to focus on growing the Senua and State of Decay 3 franchises.
Sharma also said Arkane Studios, known for Dishonored and currently developing Marvel’s Blade, has begun consultations with its workers’ union in France to evaluate future options.
AI investments continue to reshape workforce
The restructuring comes as major technology companies increase spending on artificial intelligence. Industry-wide AI investments are expected to exceed $700 billion this year, putting pressure on companies to improve returns while managing rising costs.
Microsoft Chief People Officer Amy Coleman told employees in a memo that the eliminated positions were “not being replaced by AI.”
“At the same time, what is true is that AI is changing how work gets done,” Coleman said.
Amazon and Meta Platforms have also announced thousands of job cuts this year as they continue investing heavily in artificial intelligence.
Analysts see focus on efficiency
Parth Talsania, chief executive of Equisights Research, said the layoffs appear to reflect operational discipline rather than a new catalyst for Microsoft’s shares.
“In the near term, the market is likely to reward Microsoft less for headcount reductions and more for evidence that AI monetisation is scaling faster than AI-related costs,” he said.
Microsoft shares fell 1.4% on Monday after declining nearly 23% during the first half of 2026, marking their weakest first-half performance since 2022.
Earlier this year, the company also offered voluntary buyouts to around 7% of its U.S. workforce, or roughly 9,000 employees. Microsoft has historically adjusted staffing levels near the end of its fiscal year as it prepares spending plans for the next financial year.
Gil Luria, managing director at D.A. Davidson, said Microsoft has been reducing headcount to help finance its growing AI investments while maintaining profit margins.
Although Microsoft’s Azure cloud business continues to benefit from strong AI demand, the rising cost of building data centres has increased financial pressure. The company recently forecast capital spending of $190 billion for 2026, far above market expectations, and is scheduled to report quarterly earnings later this month.