Microsoft joins AI-driven tech layoff wave with 4,800 job cuts

Microsoft is laying off about 4,800 employees, representing roughly 2.1% of its global workforce, as the tech giant restructures parts of its commercial and Xbox divisions while increasing investments in artificial intelligence infrastructure.

The company’s shares fell 1.5% in early trading following the announcement, which comes as major technology firms face mounting pressure to justify massive spending on AI development.

Industry-wide AI investments are projected to exceed $700 billion this year, prompting firms such as Amazon and Meta Platforms to also cut thousands of jobs.

In a memo to employees, Microsoft Chief People Officer Amy Coleman said AI was changing how work gets done by automating some routine tasks, but maintained that 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,” Coleman said.

The layoffs come after Microsoft shares slumped nearly 23% in the first half of 2026, marking the company’s worst first-half performance since 2022. Earlier this year, the software giant offered voluntary buyouts to about 9,000 U.S.-based employees.

Gil Luria, managing director of D.A. Davidson, said Microsoft had been reducing its workforce to sustain its growing AI investments.

“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,” Luria said.

The company’s booming Azure cloud business has benefited from rising demand for AI services, although the growing cost of building data centers has weighed on cash flows. Microsoft earlier projected $190 billion in spending for 2026, significantly above market expectations.

The restructuring also highlights challenges within the Xbox gaming division, where rising costs and weaker console demand have pressured profitability. Xbox division head Asha Sharma recently said the business needed a “reset” after its profit margin declined to 3%.

“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,” Sharma said in a memo to employees. “Going forward, this cannot continue.”

According to reports, Microsoft is considering several options for the Xbox unit, including a potential spinoff or restructuring into a wholly owned subsidiary.