Microsoft (MSFT) shares edged lower on Thursday following a Bloomberg report that the company's Xbox division is preparing significant layoffs and budget reductions. The news tempered investor enthusiasm around Microsoft's artificial intelligence strategy, which has been a key driver of recent analyst optimism.
According to the report, Microsoft's gaming unit is expected to announce workforce reductions shortly after the company's fiscal year ends on June 30. The restructuring, led by new Xbox CEO Asha Sharma, aims to improve profitability and address declining revenue in the gaming segment. Spending cuts are planned across marketing and other areas.
The reported layoffs create a near-term overhang for Microsoft shares, even as broader technology stocks advanced on Thursday. The uncertainty around one of Microsoft's major consumer-facing businesses weighed on sentiment, overshadowing positive commentary on the company's AI and cloud computing opportunities.
Despite the Xbox-related headwinds, analysts continue to highlight artificial intelligence as a long-term growth catalyst. BNP Paribas reiterated Microsoft as a preferred AI software and cloud infrastructure investment, citing accelerating adoption of Copilot, expanding enterprise deployments, and the potential for a higher-value pricing model combining software subscriptions with usage-based consumption.
Analyst Stefan Slowinski noted that Microsoft could exceed its target of more than 25 million Copilot seats in the fiscal fourth quarter, driven by stronger customer engagement, product improvements, and large-scale deployments such as NHS England's rollout of 500,000 Copilot seats. Slowinski described the AI infrastructure opportunity as “generational” and maintained an Outperform rating with a $555 price target, implying roughly 40% upside from current levels.
However, technical indicators paint a more cautious picture. Microsoft shares remain below several key moving averages, trading 7.7% below the 20-day simple moving average of $421.43 and 14.5% below the 200-day simple moving average of $454.86. The stock is also approximately 5% to 6% below its 50-day and 100-day averages.
Momentum indicators suggest investor caution. The Moving Average Convergence Divergence (MACD) remains below its signal line with a negative histogram, pointing to weakening upside momentum. Additionally, a “death cross” pattern emerged in January when the 50-day moving average crossed below the 200-day moving average, a signal that often precedes further downside.
For context, Microsoft's recent AI-driven rally has been notable. In a related development, Microsoft stock rallied on accelerated AI data center launches, nearing its best weekly gain in six years. However, some analysts have flagged caution on Azure and AI costs, as noted in this analysis.
Investors will be watching for official confirmation from Microsoft regarding the Xbox restructuring and any updates on AI monetization. The balance between near-term operational challenges and long-term AI growth will likely determine the stock's trajectory in the coming weeks.
This article is for informational purposes only and does not constitute financial advice.
