M icrosoft has started a new fiscal year with more job cutbacks that will see around 4,800 employees losing their jobs at the software giant, accounting for 2.1% of its total workforce. The job cuts have been unveiled in a memo released by the company on Monday and hit hardest on the Xbox gaming unit of the company, which, according to the CEO of the company, is the biggest reorganization in the history of the business unit. The division itself is expected to cut around a fifth of its total staff, apart from a massive overhaul involving the spin-off of four game studios.
Amy Coleman, chief people officer of Microsoft and an employee of the company for 27 years, informed the workers in a memo that the change is based on the fast-changing technology landscape. As Coleman writes, "Our business is evolving due to changes in the environment around us." She continued by emphasizing that "technology is evolving in terms of creation, deployment, and usage at a pace faster than anything I have seen in my time here." She also stated that the "vacant positions are not filled by AI," but rather artificial intelligence affects the whole process of conducting business at Microsoft in general. In addition, she said that Microsoft "is constantly working to minimize the need for job cuts."
These layoffs involve approximately 600 employees in Washington state, where the headquarters of Microsoft are located—which is a much smaller local impact compared to last year, when Microsoft reduced 3,200 positions in the same state. Despite the cuts, due to continued hiring efforts, the total number of Microsoft employees in Washington should remain approximately 52,000 people.
On a national and global level, 4,800 layoffs constitute a smaller package compared to last year, when the company laid off more than 15,000 positions in two waves in spring and summer 2025.
The Xbox Takes the Hit
Some 1,600 Xbox workers were fired on the same day as the layoffs announcement, with Microsoft confirming that the division would be downsized to cut some 3,200 jobs, or around 20% of its workforce, in the current fiscal year. The remaining job losses will take place over several months, not all in one go.
In her email to employees, Asha Sharma, the newly appointed CEO of the gaming division, made no attempt to mitigate the message, stating that "our business today is not healthy."
She noted that the division has been running with margins that were "3-10x lower than comparable platform and publishing businesses" and that some of its studios had been losing large amounts of money on each transaction.
Sharma admitted that a year-long restructuring was harder to cope with than a one-time restructuring, as she put it, "I know that a year-long restructuring process brings added challenges. Sadly, it is not feasible to do everything in one day."
In addition to these layoffs, Microsoft is spinning off its roster of gaming studios. The studios Compulsion Games and Double Fine Productions, which were acquired by Microsoft during the 2010s, will be spun off to become independent again, whereas Ninja Theory and Undead Labs, which have joined the Microsoft roster just three years ago, in 2018, will be taken under new ownership. There could be one more studio, which will be sold as well.
The Background: Artificial Intelligence Expenditure and Declining Stock
These layoffs occur against the backdrop of Microsoft, together with other major tech corporations, planning on investing some $700 billion in artificial intelligence infrastructure this year, while being pressed hard by investors for proof of results from these investments.
Microsoft has been investing heavily in data centers and AI services while cutting other parts of the organization.
Thus far, Microsoft stocks have been the biggest underperformer among megacap tech stocks in 2026, as their market value is estimated to be reduced by around 19-23%, representing a decline of about $1.2 trillion within the last nine months due to investors' worries that AI technologies will be able to replace enterprise software usage in the long run, even though AI products developed by Microsoft itself are not yet big commercial successes.
However, it cannot be said that all areas of the business are doing poorly; on the contrary, cloud services and LinkedIn, according to executives, do quite well at present. Such areas as Windows licensing and Surface and Xbox, for instance, are either declining or showing weak results. According to one of the analysts, Gil Luria from D.A. Davidson, the company's gaming business is now "almost irrelevant."
While Microsoft is not unique in cutting jobs in 2026, the company can join the list of companies such as Meta, which announced a reduction of 8,000 jobs in May, equivalent to 10 percent of its employees, along with Amazon, Google, Coinbase, and Block, among others, as leading tech firms seek to balance huge investments in AI technologies with pressures from their investors.
