Microsoft to Lay Off Nearly 5,000 Employees Amid AI Pivot

The technology giant Microsoft announced a massive workforce reduction on Monday (6/7/2026) US time. The company plans to terminate 4,800 people, equivalent to 2.1% of its total workforce, as part of cost-saving efforts amidst a major transformation towards the era of artificial intelligence (AI).

The most affected division is the Xbox video game business unit, which must undergo deep restructuring, including cutting approximately 20% of its staff. In total, Xbox will release 3,200 employees gradually. 1,600 people are part of the initial wave of 4,800 layoffs, while the remaining 1,600 will be terminated gradually throughout the 2027 fiscal year.

In an official message to all employees, Microsoft’s Chief Human Resources Officer, Amy Coleman, stated that technological transformation is now evolving very rapidly. Meanwhile, Xbox Chief Executive Asha Sharma explained that this restructuring is necessary because it is impossible to complete all changes at once.

“We will return to a growth path in 2027,” wrote Sharma.

Financial pressure is the primary reason. Although revenue from cloud services and LinkedIn has continued to grow in recent quarters, Microsoft is facing declining performance in other segments, namely Windows operating system licensing, Surface devices, and most notably, the Xbox division, where revenue continues to shrink.

Additionally, Microsoft’s stock has been the weakest among large-cap technology companies throughout 2026. Its price fell by approximately 19% up to the close of trading last Friday. Investors are concerned that new generative AI models could replace much legacy software, while Microsoft’s own AI products and services are still being integrated.

Market reaction was noticeable, though not extreme. During Monday’s trading session, Microsoft’s share price weakened by about 1%, while the tech-heavy Nasdaq index actually rose by about 1% on the same day.

This is not the first time Microsoft has implemented efficiencies. Just last year, the company cut around 9,000 positions. This current wave indicates that a major strategic shift is underway: focus is being shifted towards more profitable businesses aligned with AI trends, while business lines with slowing growth must be right-sized.

For Xbox, these cuts also serve as a recovery step. After years of heavy investment where sales and profits did not meet expectations, the division is now attempting to streamline operations to become competitive and profitable again in the future.