Microsoft said on Monday it would cut 4,800 jobs, about 2.1% of its global workforce, overhauling its Xbox gaming business and divesting up to five studios as it seeks to boost returns after years of heavy investment in the division.

The restructuring of the gaming division involves 3,200 job cuts, with 1,600 employees laid off immediately. The cuts come despite Microsoft spending tens of billions of dollars to expand Xbox — including its blockbuster $69 billion acquisition of Activision Blizzard — as the company has struggled to narrow the gap with Sony's PlayStation and Nintendo.

Xbox's new head, Asha Sharma, announced the divestment of four studios: Compulsion Games ("South of Midnight") and Double Fine Productions ("Psychonauts") will become independent studios, while Ninja Theory ("Senua") and Undead Labs ("State of Decay 3") will be spun off.

The broader context is Big Tech's historic AI spending, set to top $700 billion this year. Amazon and Meta have also laid off thousands of employees this year. Chief People Officer Amy Coleman told employees that "the roles eliminated today are not being replaced by AI," but acknowledged that "AI is changing how work gets done."

Microsoft's shares were down 1.4% on Monday, following a nearly 23% slump in the first six months of 2026 — their worst first-half performance since 2022. The company had earlier offered voluntary buyouts to about 7% of its U.S. workforce, or roughly 9,000 employees.

Booming AI demand has powered growth in Microsoft's Azure cloud business, but the mounting cost of building data centers is squeezing cash flows. The company issued a $190 billion spending projection for 2026 that massively surpassed expectations.

Sources