Microsoft Cuts 4,800 Jobs Amid Mounting AI Investment Pressure

WASHINGTON — Microsoft is cutting about 2.1% of its total workforce, or roughly 4,800 jobs, amid a restructuring of parts of its commercial business and Xbox. The Windows maker joins other tech giants in a wave of layoffs as companies divert investment into artificial intelligence infrastructure. Microsoft shares fell 1.5% in early trading. The massive spending by large technology companies on AI, expected to surpass US$700 billion this year, is increasing pressure on firms to demonstrate results from the technology and offset rising implementation costs across business lines. Amazon and Meta Platforms have also cut thousands of employees this year. In a memo to staff, Microsoft Chief People Officer Amy Coleman said AI is changing how work is done by automating some routine tasks. However, she stated the layoffs were part of a broader effort to realign resources and operational structures with company priorities. “I also want to say directly that the positions eliminated today are not being replaced by AI. At the same time, what is true is that AI is changing how work gets done,” she said. Microsoft announced the cuts on Monday, after its stock slumped nearly 23% in the first six months of 2026, marking its worst first-half performance since 2022. The software giant earlier this year offered a voluntary separation programme to about 7% of its US workforce, or around 9,000 employees. Microsoft frequently trims jobs near the end of its fiscal year in June, as it formulates spending plans for the following year. “Microsoft has been managing its headcount lower to fund AI investments. By keeping headcount low, they are able to accelerate revenue growth while maintaining the same margins,” said D.A. Davidson Managing Director Gil Luria. Surging AI demand has driven growth in Microsoft’s Azure cloud computing business, which was the exclusive seller of OpenAI models until April. However, the rising cost of building data centres to run these services is pressuring the company’s cash flow. Microsoft, expected to report financial results later this month, forecast in April that quarterly Azure sales would top Wall Street estimates, but it also issued a spending projection of US$190 billion for 2026, far exceeding expectations. AI tools increasingly capable of automating routine business tasks also pose a threat to Microsoft’s profitable software business. Meanwhile, a spike in memory chip prices driven by data centre demand forced Microsoft to raise prices for Xbox consoles, just as demand for the hardware was already weakening. The new head of Microsoft’s gaming division, Asha Sharma, said last month the business needed a “reset,” noting that the division’s profit margin had fallen to 3%, forcing 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 ongoing investments in our content, platform, and hardware subsidies. Yet our annual revenue has fallen by nearly half a billion dollars over that period. Going forward, this cannot continue,” Sharma explained in a memo to employees published on Microsoft’s website. Microsoft is considering a number of options for the Xbox gaming unit, including a possible spin-off or restructuring as a wholly owned subsidiary, according to a report by The Information last month.