Microsoft Cuts 20% of Xbox Staff... Will its AI Gamble Pay Off?

▲ Microsoft (MSFT), US stock market, tech stocks/AI generated image ©

Microsoft has embarked on a complete restructuring of its Xbox business, declaring a shift to an artificial intelligence (AI)-centric strategy alongside a large-scale reorganization. The company, acknowledging a slump in its gaming business, has decided to lay off thousands of employees and close some game studios. However, Wall Street analysts suggest that the potential for a stock price rebound still remains.

According to cryptocurrency media outlet Watcher.Guru on July 7 (local time), Microsoft is undertaking a restructuring that will cut approximately 20% of the Xbox division's staff. Initially, 1,600 employees will be immediately laid off, and an additional 1,250 positions will be eliminated over the next year. The company has also decided to cease operations of some game studios, and Microsoft's stock price fell by over 1% after the announcement.

Asha Sharma, CEO of Xbox, admitted in a letter to employees that the company had misjudged the economic challenges facing the gaming industry. He stated, "Since the beginning of this generation, the size of our platform organization has grown by 40%, but user numbers and play time have decreased," adding, "We will simplify the organization as part of the process of reorganizing Xbox." He further emphasized the need for business restructuring, saying, "The current business is not healthy, and profitability is 3 to 10 times lower compared to our platform and publishing businesses."

The media reported that major game companies, including Microsoft, Nintendo, and Sony, have been experiencing sluggish performance in recent years. In particular, with rising component prices amid a crisis related to memory and storage across the consumer technology market, Microsoft raised the price of Xbox consoles, and Sony and Nintendo have followed suit.

Currently, Microsoft's stock price is $384, down more than 20% from the beginning of the year. However, investment firm Zacks positively assessed Microsoft's potential for a rebound. Zacks analyzed that the stock price is likely to surpass $400 again, and the possibility of it falling below $300 is not high. Maintaining a 'Hold' rating, Zacks suggested that in the current range, it's necessary to consider the potential for upside rather than selling. The Zacks research team set a target price for Microsoft at $473, implying an upside potential of approximately 25% from the current stock price.

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