"The roles eliminated today are not being replaced by AI": Microsoft cuts 4,800 jobs
Microsoft says the layoffs are part of a broader restructuring rather than AI-driven job replacement, even as the company invests heavily in artificial intelligence infrastructure and reshapes its Xbox and commercial businesses.
Microsoft is cutting about 2.1% of its global workforce, or roughly 4,800 employees, as the Windows maker restructures parts of its commercial and Xbox businesses. The move makes Microsoft the latest technology giant to reduce headcount while redirecting investment toward artificial intelligence infrastructure.
The layoffs come as Big Tech's spending on AI infrastructure is expected to exceed $700 billion this year, increasing pressure on companies to generate returns from their investments while offsetting the soaring costs of deploying AI across their businesses. Amazon and Meta have also eliminated thousands of jobs this year as they ramp up AI spending.
In a memo to employees, Chief People Officer Amy Coleman said AI is changing the way work is done by automating some routine tasks, but stressed that the layoffs are part of a broader effort to realign the company's resources and organizational structure with its strategic 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," Coleman wrote.
The layoffs were announced after Microsoft shares fell nearly 23% during the first half of 2026, marking the company's weakest first-half stock performance since 2022.
Earlier this year, Microsoft offered voluntary buyouts to about 7% of its U.S. workforce, or roughly 9,000 employees. The company frequently adjusts staffing levels near the end of its fiscal year in June as it sets budgets and priorities for the following year.
"Microsoft has been managing down its workforce to help fund its AI investments," said Gil Luria, managing director at D.A. Davidson. "By keeping headcount under control, the company has been able to accelerate revenue growth while maintaining margins."
Strong demand for AI has fueled rapid growth in Microsoft's Azure cloud business, which until April was the exclusive cloud provider for OpenAI's models. However, the enormous cost of building AI data centers has begun to weigh on the company's cash flow.
Microsoft, which is expected to report earnings later this month, forecast Azure revenue above Wall Street expectations in April. At the same time, it projected $190 billion in capital spending for 2026, far exceeding analysts' forecasts.
Meanwhile, increasingly capable AI tools threaten parts of Microsoft's traditional software business by automating routine workplace tasks. Rising memory chip prices, driven by AI-related data center demand, have also increased hardware costs, forcing Microsoft to raise Xbox console prices despite already soft demand.
Gaming Division Faces Major Overhaul
Microsoft's gaming division is also undergoing significant restructuring.
Asha Sharma, who recently took over leadership of the Xbox business, said last month that the division requires a "reset" after operating margins fell to just 3%, adding that restructuring efforts could include acquisitions or other strategic changes.
"Excluding Activision Blizzard King, over the past five years we have invested more than $20 billion in content, platform development and hardware subsidies, yet our annual revenue has declined by nearly half a billion dollars during that period," Sharma wrote in a memo to employees. "Going forward, this cannot continue."
According to The Information, Microsoft is also exploring strategic options for its Xbox business, including spinning it off into a separate entity or reorganizing it as a wholly owned subsidiary.
