Microsoft joins AI-driven tech layoff wave with 4,800 job cuts
Microsoft Restructures Amid AI Investment Surge
July 6 (Reuters) - Microsoft is cutting about 2.1% of its workforce, or roughly 4,800 jobs, as the Windows maker restructures parts of its commercial and Xbox businesses, joining other tech titans in a wave of layoffs as they shift investments towards AI infrastructure.
The company's shares were down 1.5% in early trading.
AI Outlays and Industry-Wide Layoffs
Big Tech's historic AI outlays, set to top $700 billion this year, are piling pressure on companies to show returns from the technology and offset the rising cost of rolling it out across their businesses. Amazon and Meta Platforms have also laid off thousands of employees this year.
Internal Memo and Company Priorities
In a memo to employees, Chief People Officer Amy Coleman said AI was changing how work gets done by automating some routine tasks, but said the layoffs were part of a broader effort to realign resources and operating structures with the company's priorities.
"I also want to be direct that the roles eliminated today are not being replaced by AI. At the same time, what is true is that AI is changing how work gets done."
Financial Performance and Workforce Adjustments
Microsoft announced the cuts on Monday following a nearly 23% slump in its shares in the first six months of 2026, their worst first-half performance since 2022.
The software giant earlier this year offered voluntary buyouts to about 7% of its U.S. workforce, or about 9,000 employees. Microsoft often trims jobs near the end of its fiscal year in June as it sets spending plans for the new year.
AI Investments and Revenue Growth
"Microsoft has been managing down its workforce in order to pay for its AI investments. By keeping its headcount down they have been able to accelerate revenue growth while maintaining the same margins," said Gil Luria, managing director of D.A. Davidson.
Azure Cloud and Data Center Costs
Booming AI demand has powered growth at Microsoft's Azure cloud-computing business, which was the exclusive seller of OpenAI's models until April, but the mounting cost of building data centers to run those services is squeezing its cash flows.
The company, expected to report results later this month, had in April forecast quarterly Azure sales above Wall Street estimates, but also issued a $190 billion spending projection for 2026 that massively surpassed expectations.
AI Tools and Gaming Business Impact
AI tools that can increasingly automate routine business tasks have also emerged as a threat to its lucrative software business, while a surge in memory chip prices driven by data center demand has forced Microsoft to raise Xbox console prices at a time when demand for the console was already soft.
Gaming Division Restructuring
Profit Margins and Strategic Reset
GAMING DIVISION TO BE RESTRUCTURED
The gaming division's new head, Asha Sharma, said last month the business needed a "reset" and that its profit margin had declined to 3%, forcing a restructuring that could include potential M&A.
"Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time," she said in a memo to employees published on Microsoft's website. "Going forward, this cannot continue."
Future Options for Xbox Unit
The company is considering options for the Xbox gaming unit, including a potential spinoff or restructuring as a wholly owned subsidiary, the Information reported last month.
(Reporting by Aditya Soni in Bengaluru; Editing by Tasim Zahid and Leroy Leo)
