Microsoft layoffs will affect 4,800 employees, or about 2.1% of the company’s global workforce, as the technology giant restructures its Xbox gaming business and reshapes its long-term strategy.
The restructuring will eliminate 3,200 positions across Microsoft’s gaming division, including 1,600 layoffs. The company also plans to divest and spin off several game development studios as it streamlines operations.
Despite investing tens of billions of dollars in Xbox, including its acquisition of Activision Blizzard, Microsoft has struggled to narrow the gap with Sony’s PlayStation and Nintendo. Consequently, the company has shifted its strategy by releasing more Xbox titles on multiple platforms instead of relying mainly on console-exclusive games.
Xbox chief Asha Sharma told employees that Compulsion Games and Double Fine Productions will become independent studios. Meanwhile, Ninja Theory and Undead Labs will operate as separate businesses while continuing development of the Senua and State of Decay 3 franchises.
In addition, Arkane Studios, which is developing Marvel’s Blade, has started discussions with its workers’ union in France to evaluate the studio’s future.
Microsoft announced the overhaul as major technology companies continue to increase spending on artificial intelligence. Industry analysts expect major tech firms to invest more than $700 billion in AI this year, putting greater pressure on companies to improve profitability while controlling costs.
However, Microsoft’s chief people officer, Amy Coleman, said the layoffs are not the result of AI replacing workers. Instead, she said the company is reorganizing its operations even though AI continues to change how employees work.
Parth Talsania, chief executive of Equisights Research, said the layoffs reflect an effort to improve operational efficiency rather than a move designed to boost investor sentiment. He added that investors will likely pay closer attention to Microsoft’s ability to generate AI-related revenue than to the workforce reductions.
Microsoft shares fell 1.4% on Monday after losing nearly 23% during the first six months of 2026, marking the company’s weakest first-half stock performance since 2022.
