Microsoft announced on Tuesday that it will lay off around 6,000 employees—less than 3% of its workforce—as part of efforts to reduce costs while significantly investing in artificial intelligence (AI).
The job cuts will affect employees across various levels and regions, marking the company’s largest round of layoffs since it cut 10,000 jobs in 2023.
While Microsoft did let go of a small number of employees in January due to performance issues, the current layoffs are unrelated, according to CNBC, which first reported the news.
Big tech companies, including Microsoft, have been aggressively investing in AI, which they view as a key driver of future growth, while simultaneously cutting costs in other areas to protect profit margins.
Google, for instance, has also laid off hundreds of employees over the past year in a similar effort to prioritize AI spending.
A Microsoft spokesperson stated via email, “We continue to implement organizational changes necessary to best position the company for success in a dynamic marketplace.”
As of June last year, Microsoft employed 228,000 people globally and regularly conducts layoffs to refocus staffing on strategic priorities.
The latest round of layoffs comes just weeks after the company reported strong earnings, driven by growth in its Azure cloud-computing division, which helped ease investor concerns amid economic uncertainty.
However, the cost of expanding its AI infrastructure has impacted profitability, with Microsoft Cloud’s profit margins falling from 72% to 69% year-over-year in the March quarter.
Microsoft has allocated $80 billion in capital spending for the current fiscal year, most of which is directed at building new data centers to meet the surging demand for AI services.
According to D.A. Davidson analyst Gil Luria, the layoffs reflect Microsoft’s close management of margin pressures resulting from its AI investments.
He noted, “We believe that every year Microsoft invests at the current levels, it would need to reduce headcount by at least 10,000 to offset higher depreciation costs from capital expenditures.”
