Microsoft is laying off more employees amid AI growth challenges
Nickie Louise
Posted On January 9, 2025
Despite Microsoft’s market valuation surpassing $3 trillion in 2024, fueled by rising AI demands, the Redmond giant continues to adjust its workforce strategy, cutting roles even as it eyes future growth. Microsoft confirmed on Wednesday it is laying off a small percentage of employees across departments, citing performance as the driving factor, according to a report from CNBC.
The layoffs, which affect less than 1% of Microsoft’s workforce, were first reported by Business Insider. A person familiar with the situation, who requested anonymity, said the layoffs are part of an ongoing effort to optimize performance and streamline operations.
“At Microsoft, we focus on high-performance talent,” a spokesperson said in an email seen by CNBC. “We are always working on helping people learn and grow. When people are not performing, we take the appropriate action.”
These reductions follow larger waves of layoffs in 2023 and early 2024. The tech giant cut 10,000 jobs last year and, after completing the $75.4 billion acquisition of Activision Blizzard, reduced its gaming unit by 1,900 roles to eliminate redundancies. In June 2024, Microsoft reduced its workforce within its Azure cloud division by 1,500, out of a total of 228,000 employees.
While the company’s financials remain solid—boasting a nearly 38% net income margin—Microsoft’s stock growth has lagged behind its tech peers. In 2024, Microsoft shares climbed 12%, while the Nasdaq surged 29%.
Microsoft Confirmed “Performance-based” Layoffs Across Departments
The layoffs come as Microsoft navigates challenges in its high-profile partnership with OpenAI. Despite investing more than $13 billion into the AI startup, the relationship has grown strained. The collaboration played a major role in boosting Microsoft’s market cap beyond $3 trillion last year, but tensions have emerged.
Over the summer, Microsoft listed OpenAI as a competitor, and CEO Satya Nadella described their partnership as one marked by “cooperation tension” in a podcast discussion with investors Brad Gerstner and Bill Gurley.
Microsoft’s AI initiatives are also under scrutiny. The rollout of Microsoft 365 Copilot, an AI assistant powered by OpenAI technology, has been described by UBS analysts as “slow” and “underwhelming.” However, the company remains optimistic. CFO Amy Hood predicted in October that revenue growth from Azure’s AI-driven cloud services will accelerate in early 2025.
Despite challenges, Microsoft remains optimistic about growth opportunities. Amy Hood, Microsoft’s finance chief, highlighted in October that the company expects Azure’s revenue to pick up in the first half of this year, driven by increased AI infrastructure. However, the adoption of Microsoft 365 Copilot, which incorporates OpenAI technology, has been slower than anticipated. UBS analysts noted after the Ignite conference that rollouts have been “a bit slow/underwhelming.”
While these layoffs are far smaller than previous cuts, they signal that Microsoft is continuing to reassess its priorities across departments as it positions itself for its next phase of growth.
