Microsoft said that it would cut 4,800 jobs, or about 2.1% of its global workforce, overhauling its Xbox gaming business and divesting up to five studios as it looks to boost returns after years of heavy investment in the division.
The restructuring of its gaming division will involve 3,200 job cuts, including laying off 1,600 employees.
Despite spending tens of billions of dollars to expand its Xbox business, including its blockbuster acquisition of Activision Blizzard, Microsoft has struggled to close the gap with Sony's PlayStation and Nintendo. This has led the company to rethink its gaming strategy.
Instead of relying mainly on console-exclusive games to boost Xbox hardware sales, Microsoft has increasingly focused on making its games available across more platforms.
As part of its latest restructuring, Xbox's new head, Asha Sharma, said in a message to employees that the company will divest four game studios.
Compulsion Games, the developer of South of Midnight, and Double Fine Productions, known for Psychonauts, will become independent studios. Meanwhile, Ninja Theory and Undead Labs will be spun off to continue developing the Senua and State of Decay 3 franchises, Sharma said.
She also said Arkane Studios, which developed Dishonored and is currently working on a game based on Marvel's Blade, has begun discussions with its workers' union in France to review options for the studio.
Microsoft's restructuring comes as major technology companies continue to invest heavily in artificial intelligence. Big Tech companies are expected to spend more than $700 billion on AI this year, increasing pressure on them to generate returns on those investments while managing rising costs. Amazon and Meta Platforms have also laid off thousands of employees this year.
However, Microsoft's chief people officer, Amy Coleman, told employees that the positions eliminated are not being replaced by AI. She said that while AI is changing how work is done, the job cuts are not a direct result of the technology replacing employees.
Parth Talsania, CEO of Equisights Research, said the targeted layoffs appear to be more about reorganizing Microsoft's business and improving operational efficiency than creating a new reason for investors to buy the stock.
He added that investors are likely to focus less on workforce reductions and more on whether Microsoft can increase revenue from AI faster than the costs of developing and expanding the technology.
Microsoft shares fell 1.4% on Monday after declining nearly 23% during the first six months of 2026, marking the company's worst first-half stock performance since 2022.
