Microsoft has announced another huge batch of layoffs, with 4,800 employees—roughly 2.1% of its worldwide workforce—going out as the company continues to adapt to the constantly changing AI landscape.
The workforce reduction is part and parcel of Microsoft’s larger drive to simplify operations, cut expenses and shift resources to AI-based development. Xbox is the most affected division with about 3,200 jobs, or nearly 20 percent of its gaming workforce, being laid off.
Xbox Hit Hard by Restructuring
In an internal memo to employees, Xbox CEO Asha Sharma said that 1,600 employees would resign instantly as part of the current layoffs, while another 1,600 jobs will be cut down over Microsoft's fiscal year 2027 period.
Sharma said that the implementation of the restructuring over a long time would create some uncertainty, but that the phased approach was needed.
But it was not possible to make those changes in one day, Sharma said, and the company remains optimistic about Xbox’s future and it will return to growth in 2027.
Microsoft Bets Big on Artificial Intelligence
If Microsoft's Chief People Officer Amy Coleman explained the rationale behind the restructuring, Microsoft's Chief People Officer Amy Coleman said the technology industry is undergoing one of its biggest transformations, and a lot of it is about the technology industry's biggest transformations, in large measure driven by artificial intelligence.
"The way technology is built, deployed, and used is transforming faster than at any point in my time here," Coleman said in a message to employees.
She said Microsoft needs to transform its workforce and business priorities to be competitive in an era in which AI innovation is taking hold at scale.
Over the past two years, Microsoft has spent billions of dollars on AI infrastructure, cloud computing and generative AI services. Now, they are lowering costs in slower-growing areas and moving resources towards long-term AI projects.
Market Challenges Add to Pressure
Microsoft’s layoffs also come at a time in which investors are increasingly demanding more from it. Despite its huge AI investments, it is still the worst-performing megacap technology stock in 2026, down 19 percent.
Investors still worry that generative AI could disrupt traditional enterprise software businesses faster than Microsoft can monetize its own AI products and services.
Microsoft shares fell another 1 percent after the announcement in Monday’s trading even when the technology-laden Nasdaq Composite gained.
While businesses like Azure cloud services and LinkedIn have continued to grow, other divisions—including Windows licensing, Surface devices, and the Xbox gaming business—have struggled with slow demand and declining revenue.
Another Round of Workforce Reductions
The layoffs follow several workforce reductions in the past year that Microsoft has made over the past year. Microsoft eliminated over 9,000 jobs in 2025 alone through restructuring programs to improve efficiency and align spending with its long-term strategic goals.
Microsoft’s move is part of a broader trend in the tech industry: Big companies are cutting the workforce and investing heavily in artificial intelligence. And AI is transforming all the business sectors; businesses are turning to automation, cloud infrastructure and next-gen technologies more than they are traditional businesses.
Although layoffs are an awful thing for thousands of employees, Microsoft is optimistic that the restructuring will allow the company to grow and stay on top in the AI-first future.
