Microsoft is cutting close to 4,800 jobs; that’s about 2.1% of its entire global workforce. And this isn’t a one-time thing.   

Xbox is feeling the pain the most. About 1,600 people lost their jobs there today alone. That makes this one of the toughest days in Xbox’s history.  

Why Now?

Microsoft’s leadership says the world is changing fast as technology moves at a faster pace. Customer needs are changing, too, so the company says it has to change with them.

Amy Coleman, Microsoft’s chief people officer, shared the news in a memo to staff. She explained that companies don’t get to pick whether their industry changes. They only get to pick how they respond to it.

That means jobs, teams, and priorities all have to move around. And some roles just don’t fit anymore.

Is AI to Blame?

Coleman explained that these specific job cuts are not because AI replaced people directly. She admitted that AI is changing how work actually gets done. 

Some daily tasks can now be automated. That means workers need to keep learning new skills to stay relevant.

For the thousands of people who just lost their jobs, that explanation might not feel like much comfort. Whether AI directly caused the cuts or not, people are out of work. 

Microsoft also recently launched a new business unit called Frontier Company. Its whole purpose is to help other businesses use AI tools at scale. 

Microsoft backed this unit with a massive $2.5 billion investment.

Also read: Microsoft Announces $500M in AI Savings After Mass Layoffs

Xbox 

Asha Sharma runs Xbox as its CEO. She sent her own message to staff on Monday, calling it the most serious restructuring Xbox has ever gone through.

She said Xbox’s business isn’t healthy right now. Profit margins are running far lower than those of similar gaming and platform companies. In some cases, three to ten times lower.

Xbox tried a lot of things to fix this. Game Pass, its subscription service, was one. The company also improved its game library and partnered with multiple platforms. 

None of it grew fast enough to fix the core problem.

On top of that, Sharma pointed to a rough patch for the whole gaming hardware industry. She called it the worst hardware crisis the industry has ever faced.

Xbox Studios

Four gaming studios are getting new setups. Compulsion Games and Double Fine Productions will become independent studios again. 

Ninja Theory and Undead Labs are moving to new ownership. Both will get funding to finish and grow their current games.

Xbox is also flattening its management structure. Right now, there are 14 layers of management. The goal is to shrink that down to five layers, or ideally just three.

Helen Chiang, a longtime Xbox executive, is becoming chief operating officer. She’ll now oversee profit and loss across content, hardware, platforms, and services.

Going forward, Xbox says it wants to focus on its strongest bets. That means doubling down on things like Minecraft and Candy Crush, both proven moneymakers, instead of spreading resources across too many smaller projects.

Gaming Industry 

The whole gaming industry is shrinking right now. And it’s happening at the same time AI world models are heating up. 

Companies like Google DeepMind, World Labs, General Intuition, Luma AI, and Runway are building AI systems that can create playable virtual worlds. 

These companies have pulled in serious funding over the past year. Many see gaming as their fastest path to making money from this new tech.

Layoffs

Microsoft has been trimming its workforce for a while now. Back in April, the company offered buyouts to employees. Reports suggest around 5,500 people took that deal. 

Last year was even bigger; Microsoft cut about 15,000 jobs in two separate rounds. Tech companies across the board have cut close to 154,000 jobs in just the first half of 2026. 

Meta, Oracle, Amazon, and Cognizant are just a few of the other big names making cuts.