Microsoft Cuts 4,800 Jobs Amid Mounting AI Investment Pressure
Microsoft has cut approximately 2.1% of its total workforce, or about 4,800 jobs, amidst restructuring within parts of its commercial business and Xbox division. The Windows maker joins other tech giants in a wave of layoffs as companies pivot investments towards artificial intelligence (AI) infrastructure.
Microsoft’s shares fell 1.5% at the start of trading. Massive spending by big tech companies on AI, which is expected to exceed US$700 billion this year, has increased pressure on firms to demonstrate returns from the technology and offset rising implementation costs across all business lines. Amazon and Meta Platforms have also cut thousands of employees this year.
In a memo to employees, Microsoft’s Chief People Officer, Amy Coleman, stated that AI is changing how work is performed by automating certain routine tasks. However, she noted that the layoffs are part of a broader effort to realign resources and operational structures with company priorities.
“I also want to state directly that the positions eliminated today are not being replaced by AI. At the same time, it is true that AI is changing how work is done,” she said, as quoted by Reuters.
Microsoft announced the cuts on Monday (06/07/2026), after its shares plummeted nearly 23% in the first half of 2026. This marked Microsoft’s worst first-half performance since 2022.
Earlier this year, the software giant offered a voluntary resignation programme to approximately 7% of its US workforce, or about 9,000 employees. Microsoft frequently conducts job cuts towards the end of its fiscal year in June, as the company prepares its spending plans for the following year.
“Microsoft has been managing its workforce reduction to fund AI investments. By keeping headcount low, they are able to accelerate revenue growth while maintaining the same margins,” said Gil Luria, Managing Director at D.A. Davidson.
Increasing demand for AI has driven growth in Microsoft’s Azure cloud computing business. Azure was previously the exclusive provider for OpenAI models until April. However, the rising costs of building data centres to run these services are putting pressure on the company’s cash flow.
Microsoft, which is expected to report financial performance at the end of this month, projected in April that quarterly Azure sales would exceed Wall Street estimates. However, the company also issued a spending projection of US$190 billion for 2026, far exceeding expectations.
AI tools that are increasingly capable of automating routine business tasks also emerge as a threat to Microsoft’s profitable software businesses. Meanwhile, a surge in memory chip prices driven by data centre demand has forced Microsoft to raise the price of its Xbox consoles, at a time when demand for the console is already weakening.
Gaming Division to be Restructured
Microsoft’s new head of the gaming division, Asha Sharma, stated last month that the business requires a “reset” or realignment. She noted that the division’s profit margins have dropped to 3%, necessitating a restructuring that could include potential mergers and acquisitions.
“Outside of Activision Blizzard King, over the last five years, we have spent more than US$20 billion on sustained investment in content, platforms, and our hardware subsidies. However, our annual revenue has decreased by almost half a billion dollars during that period. Moving forward, this cannot continue,” Sharma explained in a memo to employees published on Microsoft’s site.
Microsoft is considering several options for its Xbox gaming unit, including the possibility of a spin-off or restructuring it as a fully-owned subsidiary, according to a report by The Information last month.