KEY POINTS
- Microsoft (NASDAQ:MSFT) is cutting 4,800 jobs, about 2.1% of staff, with its struggling Xbox gaming unit hit hardest.
- The cuts help fund a record US$190 billion 2026 spend on AI and data centres, up 61% on last year.
- MSFT is the worst-performing big US tech stock in 2026, down around 20% and trading near US$384.
- With analysts averaging a US$562 target and earnings due late July, the sell-off may be a buying opportunity for the patient.
Microsoft (NASDAQ:MSFT) is cutting about 4,800 jobs, or 2.1% of its staff, in one of its biggest shake-ups in years. On paper, that looks odd, because this is a company spending a record US$190 billion this year, not one in trouble. That contradiction is the real story.
These cuts are how Microsoft pays for its giant AI bet while its shares sit as the worst performer among the big US tech names in 2026. So is that weakness a warning, or a rare chance to buy a great business cheaply?
Why Microsoft Is Cutting Jobs While Spending Record Billions
Here is the real reason. Microsoft plans to spend around US$190 billion building data centres and AI systems in 2026, up 61% on last year and far more than analysts expected. Spending that much, that fast, eats into cash, so management is cutting staff to protect profits.
In our view, that is what these layoffs really signal: cost discipline to fund the AI race, not a business in distress.
About US$25 billion of that spending comes from soaring memory chip prices, the same shortage now lifting makers like Micron and SK Hynix. Microsoft’s HR boss was clear the cut roles are not being replaced by AI but admitted AI is changing how work gets done. The takeaway is simple: Microsoft is rebuilding itself around AI, and jobs are the cost it is cutting to pay for it.
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Xbox Takes the Hardest Hit as Microsoft Weighs a Spinoff
Xbox is hit hardest. About 1,600 of the cuts fall on gaming now, and the unit will lose around 3,200 people, a fifth of its team, by 2027. Four game studios are being spun out, and two of them will become independent again.
The reason is blunt: Xbox’s profit margin has fallen to just 3%, and its sales have been shrinking.
What makes this important is what may come next. Microsoft is openly weighing a full spinoff of Xbox. We believe that could actually help shareholders, because strong game brands like Call of Duty and Halo may be worth more on their own than buried inside a giant software company. For investors, gaming has become a sideshow to the AI story that really drives the stock.
The Investor’s Takeaway for MSFT
So should you buy the dip? The case is tempting. After falling around 20% this year to near US$384, Microsoft looks cheap against the profits it is expected to earn, while its Azure cloud business keeps growing close to 40%. Most analysts are bullish, with an average price target around US$562, more than 40% above today’s price.
But the concern is real. That US$190 billion spend has to start paying off. If AI income keeps lagging the cash flow into data centres, the shares could stay weak no matter how many jobs are cut. The big test is Microsoft’s earnings in late July.
Our view: for patient investors, today’s weakness looks more like an opportunity than a red flag, thanks to the strong cloud business and low price. But this is one to watch, not chase.
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