Microsoft said it is laying off 3 percent of its workforce across all levels, teams and regions, in a move likely to affect thousands of staff, as it spends billions on artificial intelligence.

The company had 228,000 employees at the end of June, with 126,000 in the US.

The cuts are the firm’s biggest round of layoffs since 2023, when it slashed 10,000 staff amongst a broader wave of post-pandemic adjustments in the tech industry.

AI expenditures

Microsoft reported better-than-expected profits of $25.8 billion (£19.4bn) for its most recent quarter in late April, as well as a strong forecast.

But its spending on AI has weighed on profit margins, and analysts indicated Microsoft appeared to be responding by cutting its headcount to reduce costs.

Gil Luria, an analyst with D.A. Davidson, told Reuters his firm believes Microsoft would need to reduce its staff by at least 10,000 every year that it maintains capital expenditures at the current levels to make up for higher depreciation levels.

Luria said the cuts showed Microsoft was “very closely” managing the margin pressure created by its huge AI investments.

The company has said it plans to spend $80bn in capital outlays this fiscal year, with much of that going toward expansion of data centres to expand AI computing capacity.

Margin pressure

In the March quarter Microsoft Cloud margins narrowed to 69 percent from 72 percent a year earlier, with overall gross margins at 69 percent for the quarter, down from 70 percent year-on-year.

Microsoft said in an emailed statement that the staff cuts were necessary to “best position the company for success in a dynamic marketplace” and indicated that removing management layers was a motivation.

Unlike a small round of layoffs in January, these are not performance-based, the company said.