--- title: "Microsoft prioritizes capital towards AI computing as the new CEO of Xbox initiates a restructuring of the \"Microsoft gaming empire.\"" type: "News" locale: "en" url: "https://longbridge.com/en/news/289401750.md" description: "Microsoft Xbox's new CEO Asha Sharma plans to implement large-scale layoffs and restructure the business in July to curb the decline in revenue and profits. This move aims to reduce redundant structures and marketing budgets, end the high-subsidy low-profit model, and shift capital priorities towards AI computing power to address the group's resource consumption issues" datetime: "2026-06-11T02:32:25.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289401750.md) - [en](https://longbridge.com/en/news/289401750.md) - [zh-HK](https://longbridge.com/zh-HK/news/289401750.md) --- # Microsoft prioritizes capital towards AI computing as the new CEO of Xbox initiates a restructuring of the "Microsoft gaming empire." According to the Zhitong Finance APP, Microsoft (MSFT.US), the American tech giant, plans to conduct large-scale layoffs next month in its massive gaming division centered around Xbox. The new CEO of Microsoft's Xbox gaming division, Asha Sharma, is restructuring this increasingly complex and redundant video game business to curb the decline in revenue and profits in recent years. Media reports, citing sources familiar with the company's strategy, indicate that the exact scale of the layoffs is currently unclear and is expected to occur shortly after the end of Microsoft's fiscal year on June 30; these individuals requested anonymity as they were not authorized to speak to the media. Sources say that Xbox also plans to significantly cut budgets in marketing and other segments of the business division. An Xbox spokesperson declined to comment. Since taking over as Xbox CEO in February this year, Sharma has quickly made her mark in the department. She has publicly discussed the challenges facing the organization and recently stated at the Bloomberg Technology Conference that she plans to "reset this business," which "is not in a healthy state." In an email to employees posted on the Xbox blog on Wednesday, Sharma wrote that the business has fallen to a 3% "accountability profit margin," a core metric Microsoft uses to reflect profitability. She wrote, "Excluding Activision Blizzard King, we have continuously invested over $20 billion in content, platform, and hardware subsidies over the past five years, but our annual revenue has unexpectedly declined by nearly $500 million during this period. This situation cannot continue." These points indicate that the planned large-scale layoffs are primarily a typical "low-return asset restructuring": Microsoft is no longer willing to allow Xbox to continue consuming group resources with a high-subsidy, high-investment, low-profit margin model. The layoffs and restructuring are also indirectly but clearly related to the disruptive effects brought about by AI. It is not that AI is directly replacing Xbox employees, but rather that the strategic vision focusing on cutting-edge AI technology, especially the growth plan centered on significantly expanding cloud AI inference computing resources, has changed the priority of capital allocation within Microsoft: the Azure cloud computing platform, Copilot, and AI data center construction processes are becoming the core engines of Microsoft's growth curve, while the Xbox business, characterized by low profit margins, heavy hardware subsidies, and unstable growth, will be forced to accept stricter capital control discipline from Microsoft. **Xbox's new CEO wields the knife to restructure the gaming empire: layoffs, budget cuts, and a return to exclusivity are the three axes of Microsoft's self-rescue in the gaming business.** Xbox was once one of the super giants in the video game industry, but it has struggled to achieve growth in recent years. Its gaming hardware sales have plummeted, it has failed to consistently launch popular games, and the popularity of its subscription service Game Pass has stagnated. Under pressure from its parent company Microsoft to improve profit margins, Xbox has been closing game studios, canceling some game releases, and raising prices over the past two years Sharma wrote that Xbox has some industry-defining game franchises with huge potential and player demand, "but we haven't provided enough funding for them to compete and win." At the same time, she added that increasingly stable exclusive games and new IP pipelines are crucial to the ultimate success of the gaming business. "We need to reassess the balance between these game strategic contents and our investment priorities for the next five years." Sharma stated that Xbox will need to rebuild its platform infrastructure in the coming weeks and months and rethink its product portfolio. The company had previously expanded to broaden its content pipeline but found itself "overextended while executing a changing growth strategy in an environment where content is more readily available." In recent years, Xbox has released most of its software on competitors Sony Group's PlayStation and Nintendo's Switch consoles, which helped games like "Indiana Jones" and "Forza Horizon" reach a larger audience. However, in the process, the move to abandon exclusivity may have weakened the purchasing appeal of Xbox hardware. Sharma is seeking to reverse this direction. On Sunday, during a video release showcasing the company's upcoming game lineup, she announced that "Gears of War: E-Day" and "Clockwork Revolution" would not be landing on PlayStation or Switch. In subsequent interviews, she and her executive team indicated that future titles would be handled on a case-by-case basis rather than a unified release. According to sources familiar with Xbox's strategy, a PlayStation 5 version of the new "Gears of War" game was in development and was set to be released as planned until Sharma changed the direction. Retailers had previously been preparing to launch pre-orders for the PlayStation 5 version, and many Xbox employees were surprised by the announcement. Sources familiar with the plan changes stated that Sharma and her team also pulled a "Halo" trailer that was scheduled to debut at a PlayStation event last week, which could damage the relationship between the two companies. Returning to exclusivity may excite Xbox's loyal fans and improve the brand's prospects, but it could also mean sacrificing significant revenue scale. PlayStation 5 sales have surpassed 90 million units, while analysts estimate Xbox sales are only about one-third of that. In an email to employees, Sharma reiterated that Xbox is facing a component crisis and stated that by the holiday season of 2027, she expects the company to pay five times the cost for high-capacity storage and memory components compared to 2024. Therefore, she wrote that they would have to change the overall strategy for the next-generation console, codenamed Helix. She wrote, "Although the entire industry is facing a component crisis, we believe that due to the choices we made over the past five years, we are more affected than many of our peers." "We currently cannot produce as many consoles as players want to buy, and as we continue to commit to Helix, we need a new hardware development business model and partnerships." Surprisingly, Sharma did not publicly mention layoffs in her employee memo. She stated at the Bloomberg Technology Conference that she is not under the same financial pressure from Microsoft as her predecessor Phil Spencer. She said, "My task is not to achieve a 30% accountability profit margin." "Nor is it to achieve enterprise software profit margins. My task is to become the world's largest gaming and entertainment company." To achieve this goal, Sharma painted a picture of a company that urgently needs transformation. In her memo, she wrote, "For some of you, discovering these realities may be incredibly surprising, even frustrating." "We cannot succeed by hiding difficult truths, nor can we succeed by doing the same things and expecting different results." **From Xbox layoffs to Azure surge: As the AI era arrives, Microsoft is reshuffling its business priorities** The layoffs surrounding Xbox's gaming business are not a direct result of job losses caused by AI automation, but rather a strategic reorganization under pressure from the AI capital expenditure cycle, significant price increases in memory/storage chips, high growth in cloud business, and low returns from gaming hardware. To maintain its growth center in the AI era, Microsoft must shift Xbox from "money-burning expansion" to a new efficient growth model driven by "profit margins, exclusive content, hardware partnerships, and platform expansion efficiency." As mentioned earlier, the strategic vision focused on cutting-edge AI technology has changed the priority of capital allocation within Microsoft: the Azure cloud computing platform, Copilot, and the construction of AI data centers are becoming the core engines of Microsoft's growth curve, while the Xbox business, characterized by low profit margins, heavy hardware subsidies, and unstable growth, will be forced to accept stricter capital control discipline from Microsoft. Microsoft's latest quarterly performance in cloud and AI business has been strong, with total revenue from Microsoft Cloud reaching $54.5 billion, a year-on-year increase of 29%. Among them, Azure's cloud computing business saw a significant year-on-year growth of about 39%-40%, and the commercial remaining performance obligations grew by 99% to $627 billion, while the annualized revenue run rate for AI-related businesses surged to about $37 billion, a year-on-year increase of 123%. At the same time, the company is significantly increasing AI capital expenditures related to AI data center construction. In this context, the Xbox layoffs are essentially Microsoft's group-level rebalancing of resources from the "low-return entertainment hardware ecosystem" to the "high-growth AI cloud computing infrastructure." From a fundamental perspective, Microsoft is no longer simply relying on grand narratives about AI to support its valuation; rather, the AI-driven growth trajectory of Azure cloud computing is accelerating its realization. The aforementioned data indicates that Azure is beginning to break away from the narrative of "massive money-burning AI arms race" and is starting to form an AI revenue closed loop among cloud AI computing infrastructure resources, enterprise AI agents' accelerated deployment, Copilot, AI developer ecosystem, and model services; if combined with cloud computing contract renewals and price increases, there is room for further upward revision of Microsoft's cloud computing business revenue expectations and valuation multiples In addition, the deeper impact of AI is also reflected in the supply chain of Xbox hardware related to the gaming business: the strong demand for high-performance hardware components such as AI servers for DRAM/HBM memory components, NAND storage chips, AI GPUs/AI ASICs, data center CPUs, and network infrastructure is significantly driving up the manufacturing costs of gaming consoles. As Sharma mentioned, it is expected that by the holiday season of 2027, the cost that Xbox pays for storage and memory components could be five times that of 2024; The Verge previously reported that Xbox is rethinking the business model of the next-generation console Helix due to the "RAMageddon" style pressure on memory and storage costs. BNP Paribas recently released a research report stating that SpaceX and Alphabet's Google (GOOGL.US) have recently reached a significant AI cloud computing infrastructure deal—under this deal, Google will pay SpaceX $920 million per month to obtain the AI computing power infrastructure provided by SpaceX, which may demonstrate to global investors that another American cloud computing leader, Microsoft's Azure cloud computing business unit, still has further strong upside potential. According to BNP Paribas, the "SpaceX-Google cloud computing deal" conveys a crucial positive market signal: the supply of AI computing power infrastructure remains extremely tight, especially as the pricing power for cloud AI inference computing is shifting towards cloud computing platforms with large-scale schedulable computing resources. Analyst Stefan Slowinski from BNP Paribas continues to give Microsoft stock a "Buy" rating, with a target price set at $555. As of Wednesday's market close, Microsoft's stock price was $397.36, indicating that BNP Paribas views Microsoft's stock price outlook over the next 12 months as very optimistic ### Related Stocks - [MSFT.US](https://longbridge.com/en/quote/MSFT.US.md) - [SONY.US](https://longbridge.com/en/quote/SONY.US.md) - [6758.JP](https://longbridge.com/en/quote/6758.JP.md) - [NTDOY.US](https://longbridge.com/en/quote/NTDOY.US.md) - [7974.JP](https://longbridge.com/en/quote/7974.JP.md) - [BNPQY.US](https://longbridge.com/en/quote/BNPQY.US.md) - [GOOGL.US](https://longbridge.com/en/quote/GOOGL.US.md) - [GOOG.US](https://longbridge.com/en/quote/GOOG.US.md) ## Related News & Research - [Microsoft’s Xbox 25th anniversary console comes in translucent green](https://longbridge.com/en/news/288967645.md) - [Satya Nadella is trying to rein in the tokenmaxxers at Microsoft](https://longbridge.com/en/news/289410595.md) - [Microsoft Expands NHS AI Rollout](https://longbridge.com/en/news/289096117.md) - [Microsoft Announces Majorana 2 Quantum Chip as Wedbush Calls It Another ‘Validation’ for the Industry](https://longbridge.com/en/news/288962970.md) - [Xbox Games Showcase 2026: All the news and trailers](https://longbridge.com/en/news/288965844.md)