Microsoft trims 4% of workforce amid growing AI focus

Microsoft Corp. has confirmed that it will lay off approximately 9,000 workers, marking its second mass layoff this year. The company cited the move as part of its ongoing efforts to align the organisation with changing market dynamics and focus on strategic growth areas, particularly in artificial intelligence (AI) and cloud computing. The layoffs, which affect multiple divisions, are part of broader organisational changes that include eliminating management layers and streamlining operations. The announcement came on July 2, as Microsoft entered its 2026 fiscal year, typically a time when the company reviews its internal structure and priorities. This latest round of cuts represents about 4 per cent of its global workforce, which stood at 228,000 employees as of June 2024.

Gaming to bear the brunt

The job reductions will have a significant impact across various business units, with particular attention on Microsoft’s gaming division. The company’s Xbox business is expected to be one of the hardest hit, following a trend of job cuts in recent years as Microsoft pivots to prioritise AI development.

The gaming division, which includes subsidiaries such as King, the makers of Candy Crush, ZeniMax, Raven Software, and 343 Industries (the developer behind Halo), will see substantial workforce reductions. King, based in Stockholm, is laying off 10 per cent of its staff, or around 200 employees. Several other gaming studios under the Xbox umbrella, including those working on high-profile projects like Perfect Dark and Everwild, have been impacted by project cancellations.

Phil Spencer, CEO of Microsoft Gaming, wrote in a memo to staff that these decisions were made to prioritise the company’s strongest opportunities in the rapidly changing gaming industry. He emphasised that the gaming division would focus on areas that are poised for long-term success, despite the cancellation of several in-progress projects.

Company’s focus on artificial intelligence

While the layoffs come as a shock to many, they also reflect Microsoft's ongoing shift toward AI, a sector that the company sees as integral to its future success. Microsoft is investing billions of dollars in expanding its AI capabilities, including developing massive data centres and AI models. In fact, the company recently announced an $80 billion investment in its AI infrastructure. This focus on AI has reshaped the company’s workforce needs, with high-cost employees in non-core areas being let go to make room for the company’s new priorities.

Microsoft’s AI division is led by Mustafa Suleyman, who was brought in last year to spearhead efforts in machine learning and AI. As part of its AI push, Microsoft is also making significant investments in cloud-based services, which it expects to drive long-term growth. The company has also been expanding its stake in OpenAI, the parent company behind the popular ChatGPT chatbot.

Despite these strategic shifts, Microsoft has faced challenges in selling its AI-driven products, such as Copilot, to enterprise clients, with reports suggesting that many office workers still prefer ChatGPT over Microsoft’s offerings. This has led to tensions between Microsoft and OpenAI, as the two companies struggle to define their relationship moving forward.

A trend across the tech industry

Microsoft’s layoffs are part of a broader trend of workforce reductions across the tech industry. Other major players, including Meta, Amazon, and Autodesk, have also cut jobs this year, often in response to shifting priorities toward AI and automation. Microsoft itself had already conducted three rounds of layoffs in 2025, including a 6,000-job reduction in May and a smaller cut in June.

While the company remains profitable, posting $26 billion in net income for the March quarter, executives have emphasised that reducing management layers and cutting costs in non-strategic areas are necessary steps for maintaining long-term success. Microsoft’s stock closed at a record high of $497.45 per share on June 26, despite the uncertainty surrounding its workforce changes.

The latest layoffs mark a significant moment in Microsoft’s ongoing transformation as it pivots toward AI and cloud computing. While the company continues to report strong financials, including revenue growth in its Azure and productivity software divisions, these restructuring efforts reflect the broader shifts occurring in the tech landscape.

For Microsoft employees affected by the cuts, the future remains uncertain, but the company has promised to prioritise affected workers for new roles within the organisation. As the company braces for the future of AI and the next phase of digital transformation, its workforce realignment shows just how quickly the tech giant is adapting to a rapidly changing marketplace.