Microsoft says 'we lost 64 cents for every dollar we invested' into game studios as Xbox says goodbye to 3,200 people

Sharma said roughly 1,600 of the role eliminations would happen immediately, with the balance rolling out through fiscal 2027. Four studios are also leaving Microsoft's ownership as part of the culling: Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs.

“In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options,” Sharma added. “We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.”

The Xbox cuts are part of a broader Microsoft reduction landing this week that also hits the company's sales and consulting arms.

Award-winning studios getting the ax

The four studios leaving Microsoft are behind some very popular games. Compulsion Games is the Montreal team behind South of Midnight and We Happy Few. Double Fine Productions, the San Francisco studio Tim Schafer founded in 2000, is the maker of the Psychonauts games (the original is this author’s favorite game of all-time). Ninja Theory is the studio behind the Hellblade games, and Undead Labs is still underway on State of Decay 3.

Much has been written about Xbox’s strategy over the past decade, from the rolling-out of the much-maligned Xbox One and its hefty bet on the company’s Netflix-style Game Pass subscription service, but if you want to know the complete saga of how Xbox has slowly come apart since its heyday, I highly recommend you watch Bloomberg reporter Jason Schreier’s video on the topic, appropriately called “How Things Got So Bad At Xbox.”

Losing thousands of humans, but spending billions on AI

The layoffs come as Microsoft spends at a historic clip elsewhere — and if your guess was going to be “AI,” you’d be right. The company is on pace to lay out more than $100 billion on AI and cloud infrastructure this fiscal year, up from $88.7 billion the year before, with roughly two-thirds earmarked for AI chips.

This storyline of AI spending contrasting large layoffs seems to be playing out at most Silicon Valley giants. U.S. tech companies have announced 119,000+ job cuts so far in 2026, according to layoffs tracker Layoffs.fyi, up 66% from the same stretch of 2025.

Sharma pointed to a more immediate squeeze, too: a shortage of DRAM memory chips, driven by that same AI buildout, has pushed console component costs to multiples of their 2025 levels. The memory shortage will continue to hit every maker of consumer electronics, including Apple, as AI makers gobble up supply for data centers.

Sharma cast the layoffs a “reset” rather than a retreat from gaming. The rest of the press release lays out her plans, including a flatter organization, a tight slate of flagship franchises, and continued investment. "History is full of companies that mistake longevity for inevitability," she wrote. "We will not be one of them."