Microsoft Cuts 4,800 Jobs as AI Costs Squeeze Margins

Microsoft is cutting 4,800 jobs, about 2.1% of its workforce. The stock fell 1.5% in early trading Monday.

The layoffs hit the commercial and Xbox divisions. Chief People Officer Amy Coleman told employees in a memo that the roles eliminated are not being replaced by AI. “AI is changing how work gets done,” she said. The cuts are part of a broader realignment of resources toward the company’s priorities.

The move follows a 23% slide in Microsoft shares during the first half of 2026, the worst six-month stretch since 2022. Microsoft earlier this year offered voluntary buyouts to about 7% of its U.S. workforce, roughly 9,000 employees.

Big Tech is under pressure to show returns from a historic AI spending wave that is set to top $700 billion this year. Amazon and Meta Platforms have each laid off thousands of employees in 2026. The cost of building data centers to run AI services is squeezing cash flows even as Azure cloud revenue grows.

Microsoft forecast $190 billion in capital spending for 2026, a figure that massively exceeded analyst expectations. The company is expected to report quarterly results later this month.

“Microsoft has been managing down its workforce to pay for its AI investments. By keeping headcount down, they have been able to accelerate revenue growth while maintaining the same margins,” said Gil Luria, managing director of D.A. Davidson.

AI tools that automate routine tasks also pose a threat to Microsoft’s lucrative software business, the company acknowledged. At the same time, a surge in memory chip prices driven by data center demand has forced Microsoft to raise Xbox console prices, denting demand for a console that was already soft.

Xbox profit margin has fallen to 3%, according to the gaming division’s new head, Asha Sharma. She said the business needed a “reset” and that “this cannot continue.” In a memo published on Microsoft’s website, Sharma noted that excluding Activision Blizzard King, Microsoft had spent over $20 billion on content, platform, and hardware subsidies over five years while annual revenue from that segment declined by nearly half a billion dollars. The Information reported last month that Microsoft is considering options for the Xbox unit, including a potential spinoff or restructuring as a wholly owned subsidiary.

The MSFT stock page shows the stock at $385.79, down 1.2% on the day. The Alpha Score of 56 reflects a moderate outlook, with the market pricing in the trade-off between Azure growth and the margin pressure from heavy capex and a struggling gaming business.