Microsoft often cuts jobs near the end of its fiscal year in June as it plans spending for the new year. File | Photo credit: Getty Images/iStockphoto
Microsoft is cutting about 2.1% of its workforce, or about 4,800 people, as the Windows maker restructures its commercial operations and parts of its Xbox business, joining a wave of layoffs as other major technology companies shift investments in AI infrastructure.
The company’s shares fell 1.5% in early trading.
Big Tech’s historic AI spending is expected to exceed $700 billion this year, putting increasing pressure on companies to show benefits from the technology and offset the increased costs of deploying it across their businesses. Amazon and MetaPlatform also laid off thousands of employees this year.
Chief human resources officer Amy Coleman said in a memo to employees that while AI is changing the way work is done by automating some routine tasks, the layoffs are part of a broader effort to realign resources and operational structures with the company’s priorities.
“I also want to be frank that AI is not going to replace the roles that are currently obsolete. At the same time, the truth is that AI is changing the way we get work done,” Coleman said.
Microsoft announced job cuts on Monday (July 6, 2026) after its stock price fell nearly 23% in the first half of 2026, its worst first-half performance since 2022.
Earlier this year, the software giant offered voluntary buyouts to about 7% of its U.S. workforce, or about 9,000 people. Microsoft often cuts jobs near the end of its fiscal year in June as it plans spending for the new year.
“Microsoft has reduced its workforce to pay for its AI investments. By reducing headcount, we were able to accelerate revenue growth while maintaining the same profit margins,” said Gil Luria, managing director at DA Davidson.
A surge in demand for AI is driving growth in Microsoft’s Azure cloud computing business, and until April the company was the exclusive seller of the OpenAI model, but rising costs to build data centers to run these services are straining cash flow.
The company is scheduled to report earnings later this month, and in April it expected Azure’s quarterly revenue to beat Wall Street expectations, but it also announced a much higher-than-expected 2026 spending forecast of $190 billion.
AI tools that can increasingly automate routine business tasks are also emerging as a threat to profitable software businesses. Meanwhile, rising memory chip prices due to data center demand forced Microsoft to raise prices for its Xbox consoles at a time when demand for the console was already weak.
Game department to be reorganized
New gaming head Asha Sharma said last month that the business needed to be “reset” and that a restructuring, including potential M&A, was needed as profit margins fell to 3%.
“Over the past five years, excluding Activision Blizzard King, we have spent more than $20 billion on continued investments in content, platform, and hardware subsidies, while our annual revenue has declined by nearly $500 million,” she said in a memo to employees published on Microsoft’s website. “We cannot continue in this situation.”
The Information reported last month that the company is considering options for its Xbox gaming division, including the possibility of a spinoff or reorganization as a wholly owned subsidiary.
issued – July 6, 2026 10:30 PM IST
