Microsoft to cut 4,800 jobs as AI reshapes work, says layoffs aren’t replacing employees

Microsoft said on Monday that it will eliminate roughly 4,800 jobs – or about 2.1% of its global workforce – as it restructures parts of the company to prioritize artificial intelligence investments and other long-term business goals.

The reductions will primarily affect Microsoft’s commercial and Xbox organizations, with additional changes planned across engineering teams as the company reshapes its operations to better serve customers and accelerate AI adoption. Microsoft has historically announced organizational changes near the close of its fiscal year as it sets spending plans for the year ahead.

In a separate message to Xbox employees, Xbox head Asha Sharma described the move as “the most significant restructure in Xbox history,” saying the gaming division plans to eliminate about 3,200 positions during fiscal 2027, including roughly 1,600 roles effective Monday. Sharma said four game studios will transition to new ownership or management as part of the restructuring, which she said followed years of heavy investment in content, Game Pass and platform expansion that did not grow as quickly as the company had expected.

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The reductions will primarily affect Microsoft’s commercial and Xbox organizations. (Cesc Maymo)

In a message to employees, Chief People Officer Amy Coleman said the restructuring is designed to better align Microsoft’s workforce and investments with a rapidly changing technology landscape, while emphasizing that the layoffs are not the result of AI directly replacing employees.

“I also want to be direct that the roles eliminated today are not being replaced by AI,” Coleman wrote. “At the same time, what is true is that AI is changing how work gets done.”

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Coleman acknowledged that artificial intelligence is automating some workplace tasks, saying employees across the company will need to continue developing new skills as the technology transforms business operations.

In a message to employees, Chief People Officer Amy Coleman emphasized that the layoffs are not the result of AI directly replacing employees. (iStock)

“Some of the tasks we do every day can now be automated,” she wrote. “We all need to keep learning, keep building new skills, and keep adapting as the work evolves.”

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Microsoft said it considered alternatives before implementing layoffs, including redeploying more than 4,000 employees into new roles over the past year and reassigning another 500 workers this month. Coleman also pointed to a voluntary retirement program and the transfer of four gaming studios to new ownership or management.

The layoffs come as Microsoft continues investing heavily in artificial intelligence, data centers and cloud infrastructure while integrating AI tools across its product lineup. The broader technology industry has also been reshaping workforces as companies increase spending on AI infrastructure while looking to manage costs, with Amazon and Meta among the firms that have announced job cuts this year.

Coleman suggested Monday’s announcement may not be the last round of organizational changes.

“We are still early on this journey, and there will be more changes ahead; other parts of our business will need to make similar changes,” she wrote.

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Microsoft said it will provide affected employees with financial support and career resources as they transition to new opportunities.