Earlier this month, Microsoft announced that it was laying off three percent of its global workforce.
The move will impact over 6,000 staff, making it the highest number of job cuts since January 2023 when 10,000 employees were let go.
Microsoft has yet to provide an official release on the cuts but has confirmed the news to some media outlets.
Speaking to CNBC, a Microsoft spokesperson said:
“We continue to implement organizational changes necessary to best position the company for success in a dynamic marketplace.”
Interestingly, the layoffs came just weeks after Microsoft’s Q3 2025 earnings call, where the company posted strong figures, including breaking the $70 billion mark in total revenue, a 13 percent YoY increase.
Given the impressive performance, many questioned why the vendor has decided to reduce its headcount at this time, with some publications reporting that Microsoft made the move because of the transformational impact of AI.
Indeed, the New York Post and the Economic Times both pointed to the fact that Microsoft has confirmed plans to spend up to $80 billion on AI in fiscal year 2025.
The latter claimed that this investment is leading to growing depreciation costs and a drop in gross margins, arguing that Microsoft is looking to offset this with layoffs.
The New York Post also put forward a similar case, highlighting comments made by D.A. Davidson Analyst Gil Luria, who said:
We believe that every year Microsoft invests [in AI] at the current levels, it would need to reduce headcount by at least 10,000 in order to make up for the higher depreciation levels due to their capital expenditures.
But is this really the full story?
Two Sides to the Story
Despite the assertions made by the likes of the New York Post, it is important to remember that the customer service and experience tech industry is still growing.
While AI’s capabilities continue to advance, humans remain crucial to the process.
As it stands, tech giants like Microsoft still need people, and there are no clear-cut examples that demand for them is diminishing.
Indeed, earlier this year, 8x8 CEO Sam Wilson rubbished the idea that AI will replace contact center agents.
Wilson suggested that over the next five years, AI will have only a minimal impact on contact center staffing, with a 100-person team shrinking to around 96 employees.
This appears to be the case with Microsoft’s layoffs, as while the exact figures on which positions have been cut have not yet been confirmed, according to sources at Bloomberg, the layoffs seemed to primarily affect middle management.
In addition, there have been well-documented integration issues with Blizzard and Metaswitch, which may have been another cause, with redundancies reportedly affecting these business units.
In a nutshell, although Microsoft is undoubtedly committing more resources to AI, it is reductive to claim that this is the only reason for the staff cuts.
The vendor is also aiming to drive organizational efficiencies and improve margins to help build investor confidence.
The truth is, in relation to the rest of Microsoft’s tech suite, its AI offerings are still in their infancy. Take their service department, for example. It doesn't even have a customer-facing copilot yet – something Marc Benioff has poked fun at in recent times.