Microsoft to cut thousands of jobs as AI costs surge, affecting sales and Xbox teams

Microsoft is reportedly preparing thousands of job cuts as its AI spending continues to climb. According to Business Insider, the reductions will affect fewer than 2.5% of Microsoft’s 220,000 employees — still translating to roughly 5,500 roles. The layoffs are expected to hit sales, consulting, and Xbox teams hardest, with some employees possibly being offered new roles. The timing aligns with Microsoft’s fiscal year start (July 1), a period when workforce changes have occurred before.

Xbox is facing its own pressures. In a June memo, Xbox leaders Asha Sharma and Matt Booty called for a “reset,” citing rising hardware component costs, an overextended studio system, and complex platform infrastructure. Gadget Review named Compulsion Games, Double Fine, Ninja Theory, Arkane, and Undead Labs as potential closure or spin-off candidates, though nothing is confirmed. Earlier this year, Microsoft offered voluntary buyouts to nearly 9,000 US employees, with about one-third accepting. This new round signals that cost-cutting remains a priority even after that softer exit path.