It appears that Microsoft is going all-in on the AI gold rush, even as it slashes thousands of jobs across the company.

Microsoft’s latest round of layoffs saw about 9,000 employees let go—impacting roughly 4% of the entire workforce. According to The Seattle Times, this round of downsizing is part of a broader effort to free up resources for surging AI infrastructure costs. This isn’t quite as dramatic as one Halo Studios developer claimed last week—alleging Microsoft is actively replacing people with AI agents—but the tech giant is slashing spending to accommodate more than $80 billion in projected AI investments, a staggering $25 billion jump from the year before. Microsoft believes these investments are more essential than ever, particularly as OpenAI flexes its muscle in a complex, sometimes tense partnership.

Cost-cutting in other divisions—especially gaming—has also drawn criticism. Microsoft spent tens of billions acquiring ZeniMax Media and Activision Blizzard King to grow its Game Pass library, yet subscription numbers have fallen well short of expectations. Analysts now warn that Xbox may have bet on the wrong horse, as game subscriptions don’t have the same universal appeal as music or video streaming.

Industry backlash to Microsoft’s latest layoffs has been fierce. Just fourteen months after shuttering Tango Gameworks—the studio behind the acclaimed Hi-Fi Rush—Microsoft abruptly canceled the promising online looter shooter in development at ZeniMax Online Studios (creators of The Elder Scrolls Online, one of Xbox’s top-performing games). Former developers criticized the decision, saying the project was finally moving in the right direction, and rumors circulated that even Phil Spencer, head of Xbox, enjoyed trying out the Project Blackbird vertical slice earlier this year.

The only logical conclusion is that this cancellation didn’t come from the gaming chief himself, but rather from higher up—possibly CEO Satya Nadella. Completing Project Blackbird would have been expensive, with development only just ramping up and a projected launch window at the end of 2028. Microsoft’s priorities have shifted—strengthening AI infrastructure is now at the top of the list. For both gamers and developers, it’s a bitter pill to swallow.

Source: WCCFTech, The Seattle Times