Microsoft is eliminating 4,800 jobs, representing 2.1% of its workforce, while the company’s Xbox division has lost nearly a fifth of its workforce in the software giant’s latest effort to cut costs in the age of artificial intelligence.
“The way technology is built, deployed, and used is changing faster than at any time in my time here,” Amy Coleman, Microsoft’s chief people officer and a 27-year veteran of the company, wrote to employees Monday.
Xbox is cutting 3,200 jobs in fiscal year 2027, Xbox CEO Asha Sharma wrote in an email to divisional employees, noting that 1,600 roles will be eliminated on Monday. Another 1,600 exits are on top of the company’s total of 4,800 which is moving quickly.
“I realize that rescheduling throughout the year creates additional challenges,” Sharma wrote. “Unfortunately, it is impossible to make all the necessary changes in one day.”
The cuts amount to 20% of Xbox employees leaving, according to a person familiar with the matter, who asked not to be identified to discuss internal changes.
“We will return to growth in 2027,” Sharma wrote.
Microsoft has been the worst performer among megacap tech stocks so far in 2026, down 19% since Friday’s close, as investors fear that generative AI models could displace a host of business software, while Microsoft’s AI models and services have yet to be major setbacks. Last year Microsoft made several rounds of layoffs, including cutting 9,000 jobs.
Although Microsoft has recorded accelerated growth in cloud services and LinkedIn in recent areas, it still lags in other areas, such as licenses for the Windows operating system, Surface devices and the Xbox gaming unit, where revenue has been declining.
Microsoft stock chart.
As part of the changes announced Monday, four game studios will be spun off from Microsoft, Coleman said. A commercial business that focuses on selling to customers will also see a reduction.
Compulsion Games and Double Fine Productions studios, which were acquired by Microsoft in the 2010s, will also become independent, Sharma said in his letter. Ninja Theory and Undead Labs, which joined Microsoft in 2018, “filed terms to join new ownership.”
France-based Arkane Studios, which came to Microsoft through the $8.1 billion acquisition of ZeniMax Media in 2021, is in contact with its works council about strategic options, Sharma wrote.
In April, Microsoft launched a one-time voluntary retirement program, a first for the company. The effort targeted US employees at the top and bottom management positions. More than one-third of eligible employees accepted the offer, and the company “will continue to explore similar options in the future,” Coleman wrote.
“Decisions like this are never easy, and you are committed to always looking for ways to reduce the need for layoffs,” Coleman wrote.
While many of Wall Street’s concerns about Microsoft are linked to the company’s position on AI and CEO Satya Nadella’s failure to put together a coherent strategy for its approach to developing models, agents and other services, AI is not replacing laid-off workers, Coleman wrote.
“At the same time, the reality is that AI is changing the way work is done,” he wrote. “Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as work evolves. Our customers are navigating this same transition, and they’re counting on us to help them through it. We can’t do that well unless we do it ourselves.”
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