Microsoft Shifts Focus from Gaming to AI, Cutting Jobs in Xbox Division

Microsoft's gaming division, Xbox, has become nearly insignificant in terms of investment, according to DA Davidson's Gil Luria. In an interview with CNBC, Luria stated that every dollar invested by Microsoft now goes towards AI efforts and data centers.

Luria noted that the company's focus on AI is driven by higher returns from infrastructure software sales compared to gaming. He also mentioned that the gaming business has limited growth potential, making it a less attractive investment option.

The shift in focus comes as Microsoft reported significant job cuts in its Xbox division, with around 1,600 positions eliminated and another 1,600 roles set to be cut through fiscal year 2027. The total of 3,200 role reductions accounts for approximately 10% of the division's headcount.

Luria believes that the negative narrative surrounding Microsoft is an opportunity, as investors are overlooking the company's strengths in AI and data centers. He expects Microsoft to report accelerating Azure growth and capex growth at a lower rate when it releases its fourth-quarter earnings on July 29.