- Microsoft is laying off approximately 1,600 Xbox employees immediately and eliminating another 1,250 roles over the next year.
- The company’s gaming business is operating at margins 3-10x lower than comparable businesses, prompting a major reset.
- Despite a 1% stock drop on the news, some analysts forecast MSFT stock could rebound to as high as $473.
- The video game industry is facing a severe memory and storage crisis, impacting major players like Sony and Nintendo.
On July 6, 2026, Microsoft initiated a major corporate overhaul, announcing thousands of layoffs and a strategic shift for its struggling Xbox division. Consequently, Microsoft stock (MSFT) fell more than 1% as the market digested the news of the company’s significant restructuring.
In a statement, executives acknowledged misreading the economic challenges facing the video game industry. Xbox Chief Executive Asha Sharma noted the workforce had grown 40% even as player engagement declined, stating “As we reset Xbox, we will simplify.”
However, the scale of the cuts was profound, detailed in a public letter from Sharma. The “most significant restructure in XBOX history” will ultimately reduce the team by roughly 3,200 employees through fiscal year 2027.
The gaming industry’s broader troubles, including a memory and storage crisis, have pressured all major console makers. Consequently, Microsoft, Sony, and Nintendo have raised console prices to contend with rising component costs.
“Our business today is not healthy,” Sharma added in an email to employees. She emphasized the urgent need for a reset given the division’s severely underperforming profit margins.
Meanwhile, MSFT stock was trading at $384 at press time, down over 20% year-to-date. Despite this, analysts at Zacks believe the equity has rebound potential and could climb above $400, giving it a ‘hold’ rating. Their forecast indicates a slim chance of the stock slipping below $300, with a potential high of $473 representing a 25% return from its current price.
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