Microsoft slashes Xbox workforce amid underperforming role in global AI race
Art Raymond
Tue, July 7, 2026 at 4:04 PM EDT
4 min read
About a month ago, freshly installed Xbox CEO Asha Sharma sent out a notice to employees saying that the company’s $20 billion in investments over the past five years (not including a nearly $70 billion acquisition of hotshot game developer Activision Blizzard), razor-thin profit margins and revenues that have declined by $500 million over the same period represent a trend that “cannot continue“
On Monday, the Microsoft-owned company that’s celebrating the 25th anniversary of its namesake gaming console later this year announced layoffs aiming to reduce global employee rolls by 20% in the next two years. Those cuts include 1,600 positions announced now and plans for approximately 1,600 further reductions in the coming year. Companywide, Microsoft announced 4,800 layoffs, representing just over 2% of the software giant’s overall workforce
In an email to employees, Sharma said the reductions were part of an Xbox restructuring effort that launches in the face of challenges within the gaming industry alongside Microsoft’s rising level of investments in artificial intelligence development and underperforming role in the race among tech giants to lead out in the booming AI sector
“We are beginning the most significant restructure in Xbox history,” Sharma wrote. “After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave Xbox to new management.”
How AI is impacting tech layoffs
A New York Times report notes Microsoft is among a number of big technology companies making workforce reductions while pushing more money toward AI-related endeavors. In April, the company told investors that it expected to spend about $190 billion on capital expenditures for data centers and other infrastructure this calendar year, up more than 60% from 2025, per the Times. But the company’s work force, it said, was likely to shrink
“The ‘why’ is this: Our business is changing because the world around it is changing,” Microsoft chief people officer Amy Coleman wrote in an email to employees Monday. “The way technology is built, deployed, and used is transforming faster than at any point in my time here.”
Microsoft, which widely promotes its Copilot technology, has lagged behind internet rivals in creating AI tools and services that resonate with users, according to a report from CNBC. That helps explain why its stock price is down 17% this year, trailing all of its megacap peers, including Apple, Amazon and Meta
