Industry leaders such as Amazon and Meta have also reduced their workforces this year as spending on AI infrastructure continues to rise. Global AI-related investments by major technology companies are expected to surpass $700 billion in 2026.

The announcement follows a challenging first half of the year for Microsoft, with the company’s shares declining nearly 23 per cent during the first six months of 2026, marking their weakest first-half performance since 2022.

Earlier this year, Microsoft had already offered voluntary buyouts to nearly 9,000 employees in the United States, representing about seven per cent of its domestic workforce. The company has traditionally made workforce adjustments near the end of its fiscal year in June as it prepares budgets and spending plans for the new financial year.

While Microsoft’s Azure cloud computing business has continued to benefit from strong demand for AI services, the company is facing mounting costs associated with expanding its data centre infrastructure. Until April, Azure was the exclusive cloud provider for OpenAI’s models, helping drive strong growth in Microsoft’s cloud business. However, the significant investments required to support AI services have increased pressure on the company’s cash flows.

Despite the financial strain, Microsoft remains optimistic about its AI business. In April, the company forecast quarterly Azure revenue above Wall Street expectations and projected capital expenditure of $190 billion for 2026, substantially higher than analysts’ estimates. The company is scheduled to announce its latest financial results later this month.

The rapid adoption of AI is also reshaping Microsoft’s traditional software business by automating routine tasks, while rising memory chip prices driven by demand for AI data centres have increased production costs. Those higher costs have prompted Microsoft to raise Xbox console prices at a time when demand for the gaming hardware has remained subdued.