Microsoft Cloud Surge Masks Xbox Decline
AI-generated image · US National Wire
As AI-driven cloud revenue hits record highs, Microsoft's gaming division faces hardware slump and a strategic 'reset.'
Microsoft's fourth-quarter earnings reveal a widening gap between its surging AI infrastructure and its struggling gaming division. According to reporting from The Verge, Microsoft Cloud revenue grew 27% to $59.3 billion, with Azure revenue surpassing $100 billion for the first time. Total company revenue reached $90 billion, bolstered by a 14% spike in productivity business revenue to $37.8 billion.
In contrast, the Xbox segment is experiencing a downturn. The Verge reports that Xbox hardware sales fell 13%, while revenue from content and services, including Game Pass, dropped 10%. These losses coincide with a "reset" plan announced by Xbox head Asha Sharma, which involved sweeping layoffs and the spinoff of four game studios, including Double Fine Productions and Compulsion Games.
To stabilize the business, Sharma is implementing several changes, including testing free, ad-supported cloud gaming and lowering Game Pass prices. However, Microsoft also plans to increase console prices by at least $100 starting August 1.
During an earnings call, Microsoft CEO Satya Nadella stated the company is making necessary decisions across operations, platform, and content portfolios to reset the business for long-term growth. Nadella indicated that Microsoft expects the Xbox business to return to growth in fiscal 2027.