Microsoft to lay off 3% of workforce, CNBC reports

(Reuters) - Microsoft (NASDAQ:MSFT) is laying off 3% of its workforce, or roughly 7,000 employees, CNBC reported on Tuesday, as the technology giant looks to rein in costs, while funneling billions of dollars into its ambitious bet on artificial intelligence.

The cuts will be across all levels and geographies and are likely the largest since Microsoft laid off 10,000 employees in 2023, according to the report, which cited a company statement.

Microsoft let a small number of employees go in January over performance-related issues, but the latest cuts are not related to that and aim to trim management layers, the report said.

The company did not immediately respond to a Reuters request for comment. Its stock was slightly down in morning trading.

Big Tech has been spending heavily on the new technology as they see AI as a major growth engine, while slashing costs elsewhere to safeguard profit margins. Google (NASDAQ:GOOGL) has also laid off hundreds of employees in the past year, as it looks to control costs and prioritize AI, media reports have said.

Microsoft’s reported move comes weeks after the company posted stronger-than-expected growth in its cloud-computing business Azure and blowout results in the latest quarter, calming investor worries in an uncertain economy.

But the cost of scaling its AI infrastructure has weighed on its profitability, with Microsoft Cloud margins narrowing to 69% in the March quarter from 72% a year ago. Overall, gross margins were 69% for the last quarter, down from 70% a year earlier.

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Microsoft has earmarked $80 billion in capital spending this fiscal year, with most of it aimed at expanding data centers to ease capacity bottlenecks for artificial intelligence services.

D.A. Davidson analyst Gil Luria said the reported move showed Microsoft was "very closely" managing the margin pressure created by its heightened AI investments.

"We believe that every year Microsoft invests at the current levels, it would need to reduce headcount by at least 10,000 in order to make up for the higher depreciation levels due to their capital expenditures," he said.

The company had a total of 228,000 workers, with 126,000 employees in the United States at the end of June last year, according to its annual filing.

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