SEATTLE, July 12 (WSH) — Microsoft has laid off approximately 9,000 employees in its latest wave of job cuts, the company confirmed via internal email on July 2. The sweeping layoffs affect a broad range of departments, including engineering, marketing, sales, and particularly its gaming division, encompassing Xbox and multiple development studios acquired under its $68.7 billion purchase of Activision Blizzard.
Gaming Division Hit Hard: High-Profile Studios Shuttered
The layoffs struck the heart of Microsoft’s game development ecosystem. Renowned studios such as Rare, Turn 10, and The Initiative were impacted, with the latter reportedly shutting down entirely. The Initiative had been working on a reboot of Perfect Dark, and was composed of top-tier talent from studios like Naughty Dog, Rockstar, and Bungie. Additionally, several developers working on Call of Duty, Halo, and Forza Motorsport titles were affected.
In a move widely criticized by employees and observers, an Xbox producer suggested on social media that laid-off colleagues seek emotional support from ChatGPT—prompting backlash and a swift apology.
AI Push Drives Restructuring
Microsoft’s aggressive pivot toward artificial intelligence is seen as a key driver of the layoffs. With over $80 billion earmarked for AI infrastructure investment in its 2025 fiscal year, the company is prioritizing spending on cloud computing, machine learning, and its in-house Copilot AI tool. CEO Satya Nadella said that 20–30% of code across Microsoft products is now generated by AI.
The tech giant is also responding to mounting pressure to align with U.S. government policies promoting domestic AI leadership. Microsoft holds multiple AI-related government contracts, including a recent $695 million defense order.
Game Pass Slows, Internal Pressure Mounts
Despite initial momentum, Game Pass subscriptions have plateaued. From February 2024 to June 2025, subscriber growth rose by only 4 million—from 34 million to 38 million—falling short of projections. According to insiders, Xbox was asked to meet “unrealistic” financial targets, increasing pressure on the division. AAA game development, now routinely costing over $300 million per title, is seen as financially unsustainable.
Industry Reaction and Labor Fallout
The Communications Workers of America (CWA) union condemned the layoffs, which affected union-represented employees. “We are disappointed Microsoft chose to cut thousands of workers amid record profits,” the union stated, promising to negotiate terms for affected members.
Online, affected developers voiced dismay. One Reddit user said they were promised a raise days before being let go. Meanwhile, Microsoft’s stock remained largely unshaken—falling only 0.2% on the day of the announcement and rebounding shortly after, signaling investor approval.
Creative Risks vs. Streamlined Operations
With multiple games canceled, industry experts fear a slowdown in Microsoft’s new title pipeline. Critics warn that overreliance on AI could stifle creative breakthroughs. “If designers are only coloring in AI-generated frameworks, we’ll never get the next Red Dead Redemption,” one former Rare developer said.
What Comes Next
Microsoft will report its next earnings on July 25, providing the first financial look at its post-layoff strategy. The Xbox division is also expected to outline its revised roadmap at an upcoming product showcase later this year.
Whether this move marks a streamlined future or signals deeper systemic cuts remains to be seen. For now, the company’s message is clear: AI is the future—and 9,000 employees are the cost of that transformation.
