A new wave of layoffs at Microsoft left 4,800 employees without a job amidst the strengthening of its commitment to artificial intelligence.
The adjustment will have a direct impact on the Xbox division, where 3,200 jobs will be lost and several studios will change course, in a decision that, according to the company’s CEO, is part of a brand reset to stabilize its financial performance.
The announcement, which comes just at the start of the new fiscal year, marks a turning point for Microsoft. After a complicated year in which the company had already laid off 9,100 employees, the scale of this new round confirms the transformation process underway.
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How Microsoft is reorganizing its structure to prioritize artificial intelligence
The decision to cut thousands of jobs is in response to a cost-cutting strategy and the redirection of resources toward artificial intelligence. According to reports from Business Insider and Fox Business, the company seeks to concentrate its investments in areas considered strategic, relegating those that do not align with the new objectives to the background.
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In the case of Microsoft, the effort to improve efficiency translates into a reorganization of areas such as sales, services, and the video game unit. Although some affected workers will receive internal offers to take on new roles, the majority will be laid off.
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In parallel, the company had launched a voluntary retirement program for employees in the United States, which allowed for a reduction in part of the workforce without resorting exclusively to forced layoffs.
The pressure to monetize AI is also reflected in the Azure cloud, whose growth has been driven by the demand for artificial intelligence services.
Azure’s growth due to artificial intelligence demand coexists with higher costs in data centers and hardware that affect Microsoft’s margins.
However, rising costs in data centers and hardware have begun to impact the company’s margins. In April, Microsoft forecasted a total expenditure of USD 190 billion by 2026, far exceeding Wall Street expectations.
Microsoft has justified the cuts as part of a “significant reorganization” that will allow the budget to be focused on strategic areas and reduce spending in teams less aligned with the goal of leading in AI. The layoffs, which are in addition to the approximately 15,000 carried out in 2025, confirm a radical shift in priorities.
What will happen with Xbox and its games
The Xbox division is one of the areas most affected by the restructuring. Of the 4,800 layoffs announced, 3,200 correspond to employees of the video game unit.
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“We are beginning the most significant restructuring in the history of Xbox,” assured Asha Sharma, CEO of Xbox, to her employees via an email.
Xbox will account for 3,200 of the 4,800 layoffs and is facing the most significant restructuring in its history, according to Asha Sharma. (Microsoft)
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Sharma acknowledged that the decision is painful and emphasized that it does not reflect the talent or dedication of the workers, but rather the need to reset the business. In his words, “our business today is not healthy,” as they are operating with margins between three and ten times lower than those of other platforms and publishers.
The executive admitted that the Xbox Game Pass program did not grow at the expected pace and that the unit is facing a delicate financial situation. The profit margin has been reduced to 3%, forcing the exploration of mergers, acquisitions, and other forms of reorganization.
In the last year, the division’s annual revenue has decreased by nearly USD 500 million, despite investments exceeding USD 20 billion in content, platform, and hardware.
The impact of the layoffs is not limited to staff reductions. Four studios will no longer be part of Xbox and will move to new management. Compulsion Games and Double Fine Productions will return to operating as independent studios, retaining their intellectual property rights and resources for future projects.
Ninja Theory and Undead Labs will be transferred to new owners who will provide the funding necessary to continue developing titles such as Senua and State of Decay 3. In France, Arkane is in the process of consultation to define strategic options.
