Microsoft to slash thousands of jobs as AI spending concerns fuel third major layoff round in a year: report

In a 𝓈𝒽𝓸𝒸𝓀𝒾𝓃𝑔 turn of events, Microsoft is reportedly gearing up for another significant round of layoffs, potentially impacting thousands of employees next week. This move comes amid growing concerns over the company’s escalating expenditures on artificial intelligence, raising questions about its financial strategy and future direction.

According to Business Insider, the tech giant, which employs around 220,000 people, is expected to cut less than 2.5% of its workforce, translating to nearly 5,500 positions primarily in its sales, consulting, and Xbox gaming divisions. The announcement is anticipated to coincide with the start of Microsoft’s new fiscal year on Wednesday, although insiders suggest that the timing could shift.

This impending layoff round marks the third major workforce reduction for Microsoft in just over a year, following the elimination of 6,000 jobs last May and another 9,000 in July. As the AI landscape evolves rapidly, Microsoft faces scrutiny over its hefty investments—reportedly committing $190 billion to new infrastructure in the coming years—while grappling with fears that AI advancements might outpace traditional software solutions.

The company’s stock took a significant hit in June, plummeting 19%, marking its most challenging month since the early 2000s dot-com crash. The news of further layoffs isn’t entirely unexpected, especially after Microsoft initiated a voluntary retirement buyout earlier this year for U.S. employees aged 70 and above, with about a third of the eligible workforce opting for the offer.

In the gaming sector, layoffs have also been on the horizon. New Xbox CEO Asha Sharma has called for a “reset” within the company, acknowledging that it is “not in a healthy spot” due to declining revenues. Over the past two years, Xbox has faced challenges, including studio closures, canceled game releases, and rising console prices driven by increased demand for chips.

Last week, Apple also cited chip shortages as a reason for raising prices on its devices, with Xbox following suit, implementing its third price increase since late 2025.

The tech industry has seen nearly a third of all job cuts this year, with AI being a leading factor in layoffs for four consecutive months, according to a report from Challenger, Gray & Christmas. Andy Challenger, the firm’s chief revenue officer, noted that while the pace of layoffs has slowed, the tech sector remains heavily impacted, with AI significantly influencing workforce decisions.

Since the beginning of 2023, AI has been linked to over 173,000 job cut announcements, highlighting its growing role in reshaping employment landscapes. As Microsoft navigates these turbulent waters, what does the future hold for its workforce and the tech industry at large?