Microsoft Cuts 4,800 Jobs as AI Spending Soars and Xbox Undergoes Biggest Overhaul Yet

Microsoft's decision to cut 4,800 jobs marks one of the company's biggest restructurings in recent years, with the gaming division Xbox facing the largest share of the reductions. The move affects around two per cent of Microsoft's global workforce and follows another large round of layoffs announced last year, when the company said it would cut fewer than four per cent of its employees, amounting to about 9,000 roles at the time.

This latest restructuring comes as Microsoft continues to reshape its business while investing heavily in artificial intelligence. Although the company insists the eliminated positions are not being replaced by AI, it acknowledged that automation is changing the way work is carried out across the business.

The overhaul also brings major changes for Xbox, with thousands of gaming jobs set to disappear and several studios preparing to operate outside Microsoft's ownership over the coming years.

Business Transformation Plans

The latest job cuts were announced to employees in a memo from Microsoft's Executive Vice President Amy Coleman, who said the company must adapt to changing conditions.

'Our business is changing because the world around it is changing,' Coleman wrote in the memo.

She added: 'Companies don't get to choose whether their industry changes; they only get to choose whether they change with it.'

The restructuring is centred on Microsoft's Xbox gaming business, where approximately 3,200 jobs are expected to be eliminated during the coming financial year, according to reports. The reductions include employees working at four studios that are either being separated from Xbox or sold.

Xbox CEO Asha Sharma reportedly told staff that 1,600 of those positions would be cut immediately, while the remaining layoffs would take place through the 2027 financial year.

Sharma also pointed to the financial condition of the gaming business as a reason for the overhaul. She reportedly described Xbox as 'not healthy', saying its profit margins were '3-10 times lower' than those of its rivals.

She also highlighted the effect of changes to Game Pass, Microsoft's subscription gaming service. According to Sharma, Xbox lost millions of subscribers after increasing subscription prices in 2025. The company later reversed that decision and reduced the fee.

'History is full of companies that mistake longevity for inevitability,' Sharma said.

'We will not be one of them.'

AI Investment And Xbox Restructuring

The restructuring extends beyond job reductions, with several Xbox studios set for major ownership changes.

Compulsion Games and Double Fine Productions will become independent businesses while keeping their intellectual property. Ninja Theory and Undead Labs will continue operating under new owners with different sources of funding.

According to the information provided, further closures or sales also remain possible. Arkane's management in France has begun the required consultation process with its Works Council as part of the ongoing review.

The latest layoffs have also drawn attention because they come as Microsoft continues investing heavily in artificial intelligence. While the company stressed that the eliminated roles are 'not being replaced by AI', Coleman acknowledged that automation is reshaping how work is performed across Microsoft.

She also said the restructuring builds on Microsoft's £1.84 billion investment announced last week to place 6,000 engineers with major clients in an effort to accelerate AI adoption.

The latest reductions are among several rounds of layoffs announced by Microsoft over the past year. However, this restructuring stands out because of its impact on Xbox, where thousands of employees will leave the business, and multiple studios will move outside Microsoft's ownership.