Microsoft to cut thousands of roles next week, under 2.5% of its 220,000 workforce

Microsoft is planning to announce job cuts next week, impacting thousands of roles across the company, including sales and consulting positions, according to people familiar with the situation. The expected cuts are “less than 2.5%” of Microsoft’s 220,000-person workforce, and this round is set to be smaller than similar layoffs last year.

This is not a vague “restructuring” story. Microsoft is also preparing to include jobs at the Xbox gaming division, and some affected employees are expected to be offered new roles immediately, one of the people said. The timing, people noted, is planned for next week, though the exact schedule could shift. The people asked not to be identified because the information is sensitive. In other words, Microsoft is already in execution mode, not just strategy mode.

To understand why this matters, zoom out to what Microsoft is juggling. The cuts are part of a broader effort to rein in costs as it ramps up spending on AI. That framing is doing two jobs at once. Internally, it gives leadership a rationale for workforce changes while capital moves toward AI initiatives. Externally, it signals to investors and analysts that Microsoft can both fund expensive AI work and still keep spending disciplined.

Wall Street, as the source notes, has added a special kind of pressure. There has been concern that AI could replace software services, including, in theory, some Microsoft offerings. When investors worry that a company’s own products could be threatened by new technology, they tend to demand faster evidence of control: margin protection, clear prioritization, and a story that AI spending will translate into durable demand rather than cannibalization.

The numbers show Microsoft is not starting from zero. Last year, the company eliminated 6,000 roles in May and an additional 9,000 employees, or about 4% of its workforce, in July. This time, Microsoft is targeting a smaller percentage, less than 2.5% of its 220,000-person workforce. A smaller percentage can reduce operational whiplash, but it does not reduce the signal effect. A company does not run repeated cuts unless it thinks costs are still too high for the moment, or unless it needs to free resources for AI.

Microsoft is also using a lever it tested earlier. Earlier this year, Microsoft announced a voluntary retirement program offering buyouts to employees level 67 and below in the US who had 70 or more years of age and service. About 7% of Microsoft’s 125,000 US workforce, or nearly 9,000 employees, was eligible. About one-third of eligible employees took the buyout, in line with expectations, one of the people said. That voluntary move is credited with allowing Microsoft to cut a lower percentage of its workforce compared to last year, this person added.

There is a nuance here that matters for how executives think about workforce risk. The retirement buyout excluded sales employees with commission-based compensation, according to an internal document viewed by Business Insider. That kind of carve-out tells you where Microsoft is trying to avoid breaking revenue mechanics. In a restructuring, the hardest thing is not removing headcount in a vacuum. The hardest thing is removing headcount without damaging the parts of the business that generate growth and cash flow.

Xbox adds another layer. Xbox layoffs have been expected since new gaming CEO Asha Sharma sent a memo to employees calling for a “reset” for this business. That memo sets expectations before layoffs even land. Now, the anticipated cuts include Xbox roles, aligning operational decisions with that “reset” narrative. For leaders at adjacent companies, this is a reminder that gaming is not immune when a tech firm has to rebalance priorities across AI, cloud, and platform economics.

Finally, consider what the next week could do to Microsoft’s broader positioning. Some affected employees may be offered new roles immediately, which can soften morale impacts and reduce disruption to teams that need specialized skills. It also suggests Microsoft wants to keep institutional knowledge from leaking out. But the fact pattern still underscores the same central truth: Microsoft is actively reallocating people as it reallocates money into AI. The company has sometimes cut jobs around the start of its new fiscal year on July 1 in previous years, so this timing continues a pattern of aligning workforce changes with internal planning cycles.

For executives, board members, and investors watching this closely, the second-order implication is straightforward: Microsoft is trying to thread a needle between investment intensity and cost discipline while managing investor anxiety about AI disruption. The stakes are not just “how many jobs.” The stakes are whether the company can turn AI spend into confidence, whether cost reductions don’t blunt demand generation, and whether a gaming division reset can proceed without distracting the rest of the platform during a high-cost AI transition.