Microsoft shares declined on Thursday after a Bloomberg report revealed that the company’s Xbox division is preparing significant layoffs and budget reductions shortly after the fiscal year ends on June 30. The news overshadowed continued optimism around Microsoft’s artificial intelligence strategy, sending the stock lower even as broader technology shares advanced.
According to the report, Xbox plans major operational changes aimed at improving profitability and addressing declining revenue within the gaming business. New CEO Asha Sharma, appointed in February, is leading a strategic reassessment that includes staff reductions and cuts to marketing and other spending categories.
This marks the latest in a series of workforce reductions for the gaming unit. Over the past two years, Xbox has undergone multiple rounds of layoffs—approximately 1,900 jobs cut in early 2024, followed by another 650 roles eliminated later that year, and a further restructuring wave that began in mid-2025. Internal messaging pointed to a “3% accountability margin,” signaling sustained cost discipline.
Heavy investment has not translated into proportional revenue growth. Microsoft poured more than $20 billion into gaming over five years, yet annual gaming revenue reportedly declined by nearly $500 million during the same period. While the Activision Blizzard acquisition strengthened the content portfolio, it also added operational complexity and cost pressures.
The hardware segment remains under particular strain. In the fiscal fourth quarter of 2024, Xbox hardware revenue fell 42% year-over-year, while content and services revenue surged 61%—driven largely by Activision Blizzard’s titles. This divergence underscores a structural shift toward software and subscriptions.
Despite the Xbox headwinds, Wall Street analysts remain bullish on Microsoft’s AI prospects. BNP Paribas reiterated an Outperform rating and $555 price target, citing accelerating Copilot adoption, enterprise deployments (including 500,000 seats for NHS England), and the “generational” opportunity in AI infrastructure. Nevertheless, the stock remains technically challenged, trading below its 20-day, 50-day, 100-day, and 200-day moving averages, with a death cross pattern still in effect and weak momentum indicators.
