MSFT Stock Climbs Overnight: Microsoft Swings Axe On Over 3,000 Xbox Jobs As Game Pass Reportedly Falls Well Short Of Internal Goals

• Microsoft will cut some 3,200 jobs in its Xbox unit and sell or spin off some studios.
• MSFT stock is down about 20% year-to-date, leaving investors frustrated.
• Retail sentiment for MSFT was ‘neutral’ as of early Tuesday, down from ‘bullish’ over the extended weekend.

Microsoft shares gained 0.6% in overnight trading ahead of Tuesday after the company announced a major restructuring of its Xbox video games division, with more details of the overhaul continuing to emerge.

Microsoft will cut some 3,200 jobs in the unit – about 1,600 this week and 1,250 more over the rest of the fiscal year that began this month, Xbox CEO Asha Sharma said in a memo to staff on Monday. Those cuts represent about one-fifth of the division’s total headcount.

The Wall Street Journal reported that the company’s gaming subscription offering, Game Pass, was widely lagging internal targets. Microsoft had projected Game Pass subscriptions would reach around 77 million this year, according to a document revealed during legal proceedings related to the Activision acquisition. It currently has about 30 million, the journal reported, citing a person familiar with the matter.

Sharma reportedly said in her memo that Game Pass “did not grow at the pace we expected.”

Microsoft is also selling or spinning off four game development studios and exploring strategic options for a fifth one. Those include Ninja Theory, Undead Labs, Double Fine, Compulsion Games and Arkane Studios.

MSFT Stock Drags

The development comes during a difficult stretch for Microsoft in the stock market. MSFT shares fell 23% in the first six months of the year, marking their worst half-year performance since 2000 and the weakest showing among the Magnificent Seven stocks in the first half of 2026.

Microsoft has come under pressure amid a broader selloff in software stocks, hefty capital spending plans and intensifying competition in AI from Google, Anthropic, and OpenAI.

Microsoft’s Past Layoffs

Among the Big Tech companies, Microsoft has been one of the most aggressive in cutting jobs, describing the layoffs as part of routine organizational restructuring amid shifting industry dynamics. 

Following significant workforce reductions in 2023 and 2024, along with smaller targeted cuts thereafter, the company announced in June 2025 that it would eliminate 6,000 roles, or about 4% of its workforce, primarily across product and engineering teams.

Earlier this year, Microsoft announced a voluntary retirement program. About 7% of Microsoft's 125,000 U.S. workforce, or nearly 9,000 employees, was eligible, according to Business Insider. About one-third of eligible employees took the buyout, in line with expectations, according to the report. 

Retail Mood For MSFT Remains Dim

On Stocktwits, the retail sentiment for MSFT was ‘neutral’ as of early Tuesday, down from ‘bullish’ over the extended weekend, as traders express frustration over the stock’s underperformance.

 “Will Microsoft be the first big casualty of the AI bubble?” questioned a trader. 

“The problem at many of these legacy companies is that they manage their business like they’re in the 1990s or early 2000s. They had a chance to acquire OpenAI and didn’t. Had a chance to be the operating system for digital entertainment, instead they purchased successful gaming studios and killed them off.”

Another wrote: “ $NFLX $ORCL $MSFT these will not see high again any time soon.”

Still, some investors believe the recent pullback in high-flying chip stocks could benefit Big Tech as capital rotates back into the segment. “$MSFT AI stocks collapsing. Maybe some of that money will rotate into this,” a trader said.

Year to date, MSFT stock is down 20%, compared to the 10% gains in the benchmark S&P 500 index. 

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