Microsoft to Cut 4,800 Jobs, Restructure Xbox Gaming Division

Microsoft announced Monday it will cut 4,800 jobs, roughly 2.1% of its global workforce, as part of a broader restructuring of its Xbox gaming business. The company also plans to divest up to five gaming studios as it works to improve returns following years of heavy investment in the division.

Xbox Division Sees Deepest Cuts

The gaming unit will absorb the bulk of the layoffs, with 3,200 roles eliminated, including 1,600 employees let go on Monday alone. Despite spending tens of billions of dollars expanding Xbox, including its acquisition of Activision Blizzard, Microsoft has continued to trail Sony’s PlayStation and Nintendo in the console market, prompting a strategic rethink of the business.

According to Xbox’s new head, Asha Sharma, four studios will be spun off as part of the restructuring. Compulsion Games and Double Fine Productions will become independent studios, while Ninja Theory and Undead Labs will be separated to focus on their respective projects.

Microsoft has increasingly moved away from relying on console-exclusive titles to drive Xbox hardware sales, instead distributing its games across more platforms.

AI Spending Pressures Continue Across Big Tech

The layoffs come as major technology companies face mounting pressure to justify enormous AI investments, with industry-wide AI spending expected to surpass $700 billion this year. Amazon and Meta have also cut thousands of jobs in 2026. Microsoft’s Chief People Officer, Amy Coleman, said in an internal memo that the eliminated roles are not being replaced by AI, though she acknowledged that AI is changing how work gets done across the company.

Analysts described the cuts as a sign of operational discipline rather than a major catalyst for the stock. Microsoft shares fell 1.4% on Monday, following a nearly 23% decline during the first half of 2026, the company’s worst first-half performance since 2022.

Broader Workforce and Spending Trends

Microsoft earlier this year offered voluntary buyouts to about 9,000 U.S. employees, roughly 7% of its domestic workforce. The company typically adjusts staffing near the end of its fiscal year in June as it finalizes spending plans. Analysts note Microsoft has been managing down headcount to help fund its AI investments while maintaining profit margins.

Growth in Microsoft’s Azure cloud business, which was the exclusive provider of OpenAI’s models until earlier this year, has been strong, though rising data center costs are weighing on cash flow. The company had previously projected $190 billion in spending for 2026, a figure well above analyst expectations.