Microsoft announced on Monday that it is eliminating 4,800 jobs across the company, representing 2.1% of its workforce, as part of its ongoing cost-cutting measures in the artificial intelligence era. The largest portion of these cuts is concentrated within the Xbox division, which will lose approximately 3,200 jobs over the next year, according to Xbox CEO Asha Sharma in an internal message to employees. The cuts include 1. 600 positions being eliminated immediately and an additional 1,600 over the course of fiscal year 2027; “I recognize that a year-long restructuring creates additional challenges,” Sharma wrote. “Unfortunately, it is not possible to make all the necessary changes in a single day.”

Strategic Shift in Xbox Portfolio and Studio Restructuring

As part of the reorganization, four gaming studios will be spun off from Xbox and taken over by new management. This marks one of the most significant restructuring efforts in Xbox history, according to internal communications. Xbox is operating at margins that are 3-10 times lower than comparable platform and publishing businesses, according to Sharma. The division entered the ninth console generation with a smaller installed base and higher costs, and its focus on Game Pass, multi-platform games, and a broader content portfolio has not grown at the expected rate. “Our business today is not healthy,” Sharma wrote. “We must reset Xbox.”

Investor Concerns and Financial Performance

Microsoft has been the worst-performing megacap tech stock in 2026, falling 19% as of Friday’s close, according to CNBC. Investors are growing increasingly wary of the company’s heavy investment in generative AI and the potential for these models to displace traditional enterprise software. Microsoft shares slipped 1% during Monday’s trading session, while the Nasdaq Composite index rose 1%. The company also announced earlier in the year that it would invest 190 billion dollars in 2026, exceeding analyst expectations and raising concerns about its cash flow, according to La Vanguardia.

Claude AI Integration and Internal Restructuring

Amid the job cuts, Microsoft is also expanding its artificial intelligence offerings. Claude, the AI assistant developed by Anthropic, has been integrated into Microsoft 365, allowing users to perform tasks such as summarizing documents, analyzing data in Excel, and creating PowerPoint presentations directly within the software. The integration, which became official in April 2026, marks a major development in the AI space and positions Claude as a direct competitor to Microsoft Copilot within the Microsoft 365 network, according to Blogthinkbig.com. The company has also been downsizing for several months in 2025 and 2026, including a previous round that cut 9,000 jobs in 2025.