Microsoft Cuts 4,800 Jobs to Prioritise AI Growth, Xbox Hit Hardest

Microsoft has announced another round of layoffs, cutting around 4,800 employees, or roughly 2.1% of its global workforce, as the company continues to restructure its business while pouring billions of dollars into artificial intelligence infrastructure. The latest job cuts primarily affect Microsoft's Commercial and Xbox divisions, making them among the biggest restructurings at the company in recent years.

The layoffs come at a time when major technology companies are balancing record AI investments with growing pressure from investors to improve profitability.

Xbox Undergoes Major Reset

Microsoft's gaming business is bearing the brunt of the restructuring. According to reports, about 1,600 Xbox employees are being laid off immediately, with the company planning to reduce the gaming division's workforce by nearly 20% over the current financial year. Microsoft is also restructuring parts of the Xbox business, including moving several game studios under new management as it looks to improve profitability.

The move follows comments from Xbox chief Asha Sharma, who recently said the gaming business needed a "reset" after years of declining margins despite billions of dollars in investments.

Microsoft Says AI Isn't Replacing Employees

In an internal memo, Microsoft's Chief People Officer Amy Coleman said the layoffs were not a direct result of AI replacing jobs. Instead, she said the company is reorganising itself because "the way technology is built, deployed and used is transforming," adding that while AI is automating some routine work, the restructuring is primarily aimed at aligning Microsoft's workforce with its long-term priorities.

Microsoft also noted that it has redeployed more than 4,000 employees into new roles over the past year in an effort to minimise layoffs wherever possible.

AI Spending Is Driving Tough Decisions

The layoffs come as Microsoft dramatically ramps up spending on artificial intelligence. The company has projected around $190 billion in capital expenditure this year, with much of the investment going towards expanding AI infrastructure and data centres that power Azure cloud services and generative AI products. While Azure continues to grow, the massive cost of building AI infrastructure has increased pressure on Microsoft's margins.

Microsoft isn't alone. Companies including Meta and Amazon have also announced thousands of job cuts this year while simultaneously increasing AI-related investments.

A Sign of How AI Is Changing Big Tech

The latest layoffs underline a broader shift across the technology industry. Rather than replacing workers with AI overnight, companies are increasingly reshaping teams, flattening management structures, and redirecting resources towards AI products and infrastructure. Microsoft's own memo acknowledges this reality, noting that AI is changing how work gets done even if it isn't directly taking over the eliminated roles.