Microsoft has announced plans to cut 4,800 jobs globally as part of a restructuring aimed at reducing costs and repositioning the company for the growing influence of artificial intelligence.

The job cuts, representing about 2.1 per cent of Microsoft’s global workforce, will significantly affect its Xbox gaming business, where approximately 3,200 employees, around one-fifth of the division’s workforce, will be impacted. Half of the reductions will take effect immediately, while the remaining exits will be completed during the company’s 2027 fiscal year.

The latest restructuring comes as Microsoft faces increasing investor scrutiny over its artificial intelligence strategy despite continued growth in its cloud computing operations. The company’s stock has declined by about 19 per cent this year, reflecting concerns over the commercial performance of its AI products and broader challenges across parts of its business.

In a message to employees, Chief People Officer Amy Coleman said the pace of technological change is reshaping the way the company operates, adding that Microsoft must continue adapting to remain competitive.

Xbox Chief Executive Asha Sharma said the gaming division would undergo a year-long restructuring expected to reduce its workforce by about 20 per cent, while expressing confidence that the business would return to growth in 2027.

As part of the reorganisation, Microsoft will separate four gaming studios from the company and scale back parts of its commercial sales operations. Sharma said Compulsion Games and Double Fine Productions will become independent studios again, while Ninja Theory and Undead Labs are expected to move under new ownership. She also disclosed that Arkane Studios is reviewing strategic options through consultations with its works council.

The overhaul has fuelled speculation about Microsoft’s long-term commitment to its gaming business. Market analyst Gil Luria suggested the company could eventually separate Xbox from its broader operations, arguing that gaming is no longer central to Microsoft’s long-term strategy.

Coleman, however, dismissed suggestions that artificial intelligence is directly replacing employees, although she acknowledged that AI is changing workplace responsibilities by automating routine tasks and increasing the need for workers to develop new skills.

The latest announcement follows several rounds of workforce reductions over the past year, including one that eliminated 9,000 positions, as Microsoft continues to streamline operations despite ongoing growth in its cloud computing and professional networking businesses.