Microsoft Cloud and AI Surge as Xbox Sales Slide

Microsoft’s Xbox business has struggled to turn years of investment into growth after completing its $68.7 billion acquisition of Activision Blizzard in October 2023. Weak console demand and lower returns from content have widened the contrast with Azure and AI, now Microsoft’s main expansion engines. Xbox CEO Asha Sharma this month began the division’s largest restructuring, targeting about 3,200 job cuts in fiscal 2027 and moving four game studios to new ownership.

Microsoft on July 29 reported revenue of $90.0 billion for the quarter ended June 30, up 18%, while net income rose 31% to $35.8 billion. Xbox content and services revenue fell 10% from a year earlier and hardware revenue dropped 13%. By contrast, Microsoft Cloud revenue climbed 27% to $59.3 billion, while Azure and other cloud services grew 43%. Azure’s full-year revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot exceeded 30 million paid seats.