Microsoft is laying off 4,800 employees, or 2.1% of its workforce, in a restructuring announced Monday that hits the company’s Xbox gaming division especially hard, as the tech giant realigns operations around artificial intelligence investments.
The cuts took effect immediately on July 6, with Xbox losing 1,600 of those jobs on the same day, according to CNBC. An additional 1,600 Xbox employees will exit throughout fiscal year 2027, bringing the division’s total job losses to 3,200 — about 20% of its staff, according to people familiar with the matter cited by CNBC.
As part of the overhaul, four gaming studios will be spun out of Microsoft and made independent again: Compulsion Games and Double Fine Productions, both acquired in the 2010s, will become independent, while Ninja Theory and Undead Labs, which joined Microsoft in 2018, “have entered terms to join new ownership,” Xbox CEO Asha Sharma wrote in an internal memo cited by CNBC. Arkane Studios, acquired through the $8.1 billion ZeniMax Media purchase in 2021, is in talks regarding strategic options, Sharma added.
The layoffs reflect a broader shift at Microsoft toward artificial intelligence. Amy Coleman, the company’s chief people officer, stated in an internal message that “the way technology is built, deployed, and used is transforming faster than at any point in my time here,” according to CNBC. While the company noted that AI is not directly replacing workers, Coleman wrote that “AI is changing how work gets done” and that some tasks can now be automated, requiring employees to adapt and learn new skills.
Microsoft’s Xbox division has struggled financially. CNBC reported that Xbox revenue has been shrinking, placing it among areas where the company is seeing weakness. Analyst Gil Luria of D.A. Davidson told CNBC that the gaming business “has become ‘almost irrelevant'” to Microsoft and suggested the company might eventually spin it off entirely.
The restructuring is part of a broader tech industry trend. The technology sector has announced over 123,000 job cuts in 2026 year-to-date, with AI cited as the leading reason for layoffs, according to Forbes. Companies including Meta, Amazon, and Oracle have cut thousands of jobs while simultaneously investing heavily in AI infrastructure. Alphabet, Microsoft, Meta, and Amazon are expected to spend nearly $700 billion combined this year on AI infrastructure buildouts, according to CNBC reporting from April 2026.
Microsoft has been the worst performer among megacap tech stocks in 2026, falling 19% as of Friday’s close, according to CNBC. Investors have expressed concern that generative AI models might displace enterprise software, while Microsoft’s own AI models and services have yet to become major commercial successes. The company also conducted a voluntary retirement program in April 2026—a first in its history—with more than one-third of eligible U.S. employees accepting the offer.
Sources
- CNBC — 4,800 job cuts, 2.1% of workforce, Xbox losing 1,600 immediately and 3,200 total, four studios spun out, Xbox revenue decline, analyst commentary on gaming business, AI rationale, stock performance, April 2026 voluntary retirement program
- Reuters — confirmation of 4,800 cuts, overhaul of Xbox unit
- Forbes — tech industry job cuts exceeding 123,000 year-to-date, AI as leading reason for layoffs (87,714 attributed to AI)
- GeekWire — Xbox job cut breakdown and timeline details
