Job Cuts Hit Xbox, Activision, and Cloud Teams as Microsoft Restructures for 2026
Microsoft Announces Major Layoffs as New Fiscal Year Begins
Microsoft has confirmed plans to lay off around 9,000 employees, approximately 4% of its global workforce, marking its largest round of job cuts since 2023. The decision was revealed as the tech giant kicked off its 2026 fiscal year, signaling a sharper focus on artificial intelligence (AI) initiatives and operational efficiency. While the company did not specify which departments would face the biggest cuts, insiders report significant reductions in sales, marketing, and gaming divisions, including Xbox, Activision Blizzard, King, and ZeniMax.
Gaming and Cloud Teams Among Those Most Affected
According to a memo obtained by The Verge, Xbox chief Phil Spencer acknowledged the difficult decision, explaining the layoffs aim to streamline management and prioritize strategic growth areas within gaming. This comes after Microsoft let go of over 6,000 employees in May and June, raising the total layoffs in 2025 to more than 15,000. In January, about 1,900 jobs were eliminated from gaming and Activision Blizzard units, and additional cuts targeted HoloLens and Azure cloud teams in June, and Xbox staff in September 2024 following its blockbuster acquisition of Activision Blizzard.
AI Investments Drive Restructuring and Cost-Cutting
The layoffs are part of Microsoft’s broader plan to flatten management structures and improve operational agility in response to rapid changes in the tech industry. A company spokesperson noted, “We continue to implement organizational changes necessary to position Microsoft for success in a dynamic marketplace.” One key driver is Microsoft’s massive $80 billion investment in AI infrastructure for fiscal year 2025, a substantial $25 billion increase from the previous year. While the company insists it isn’t replacing employees with AI, it acknowledges the need to cut costs elsewhere to fund its long-term AI ambitions.
Also read: Chinese Company Unveils Hypersonic Jet to Circle the World in 7 Hours
Employee Morale Dips as Uncertainty Grows
Inside Microsoft, the ongoing layoffs have reportedly taken a toll on employee morale. Many staff members say the constant wave of job cuts has created a climate of fear and uncertainty. Notably, only 17% of those laid off in May were managers, despite the company’s stated goal of reducing management layers. Some employees anonymously voiced frustration, with one engineer sharing, “It’s hard to focus when you don’t know if your team will be here next week.” While leadership frames these moves as essential for long-term success, thousands of workers now face an uncertain future.
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