Xbox keeps sinking while Microsoft's AI business keeps soaring

[Daniel Sims]

Bottom line: While Microsoft continues to ride the AI wave, Xbox continues to struggle. New CEO Asha Sharma recently began implementing plans for a radical course correction, but it is still too soon to predict their impact. The company's fourth-quarter financial results for 2026 show a 10% fall in Xbox content and services and a 13% decline in hardware revenue, while Microsoft's overall profits jumped by 31%.

While Xbox's 13% YoY drop in hardware revenue is not as bad as last quarter's 33% plummet, it still caps off a full year of uninterrupted declines. Price hikes and worrying PR surrounding the brand are likely the primary factors, and the situation is expected to worsen when Xbox Series S|X consoles become at least $100 more expensive starting in August.

Xbox content and services revenue also fell by 10% YoY this quarter, compared with a 5% decline last quarter, which Microsoft again attributed to strong performance during the same quarter last year. The company is likely still referring to titles such as Call of Duty: Black Ops 6 and Minecraft, but this past quarter saw the release of one of Microsoft's most successful titles, Forza Horizon 6.

– ASHA (@asha_shar) July 29, 2026

During the Q4 earnings call, Microsoft CEO Satya Nadella expressed hope for Xbox to return to profitability in fiscal year 2027. Asha Sharma, who replaced Phil Spencer as Xbox CEO in February, has already begun implementing changes to that end, some of which are controversial.

To boost hardware sales, the company is partially reversing its policy of releasing in-house titles, such as Gears of War E-Day, on rival platforms. Microsoft also confirmed a renewed push for major franchises such as Fallout and The Elder Scrolls. However, rolling layoffs affecting 3,200 positions this year and the loss of five game studios have drawn sharp criticism and sown doubts about future game development at Xbox.

Meanwhile, the AI boom continues to lift Microsoft's overall fortunes. Revenue increased 18% YoY, and profits rose 31%, both in Q4 and for FY26 overall, mostly due to cloud and AI services. The company announced that Azure revenue exceeded $100 billion for the first time this year.

Although tech giants remain bullish on AI, the boom's longevity remains unclear. Apple recently regained its status as the world's most valuable company and joined the $5 trillion club, largely because it has kept AI at arm's length, causing investors to see it as an island of stability.

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Xbox keeps sinking while Microsoft's AI business keeps soaring

 

[winjer]

Azure makes more money in a quarter year, than Xbox in a quarter of a century.
It's truly impressive how much money MS is making with the server market.

 

[PXAbstraction]

Microsoft doesn't disclose their AI revenues individually, which should tell you volumes about how much AI itself is actually making (or rather, losing). If it was soaring as they claim, they wouldn't have to bury it within other business segments. Azure grew more yes (though it was growing healthily before the bubble, largely because of how they're enshittifying it) but revenues from AI companies who might not be around in a couple of years are mixed in with all their long-term customers. This is what a bubble looks like.

 

[Dreadcthulhu]

What's crazy is that LinkedIn of all thing is up 12%, and brought in over $5 billion in revenue last quarter. I wouldn't be surprised if it is pulling in more profits for MS than the Xbox division at this point.

 

[yRaz]

What's crazy is that LinkedIn of all thing is up 12%, and brought in over $5 billion in revenue last quarter. I wouldn't be surprised if it is pulling in more profits for MS than the Xbox division at this point.

Linkedin has been trash for years now, I don't know how it still makes money.

Xbox has been going on cycles for years now. It does something that the industry likes then they either remove the features, increase the cost or both. Anytime they generate goodwill from gamers they kick Xbox in the balls till it bleeds to make money for shareholders, all the revenue generating players leave and everyone stans around saying "all the gamers are leaving, it must be the developers fault, we need to lay them off."

 

[bviktor]

Linkedin has been trash for years now, I don't know how it still makes money.

Xbox has been going on cycles for years now. It does something that the industry likes then they either remove the features, increase the cost or both. Anytime they generate goodwill from gamers they kick Xbox in the balls till it bleeds to make money for shareholders, all the revenue generating players leave and everyone stans around saying "all the gamers are leaving, it must be the developers fault, we need to lay them off."

LinkedIn premium costs a lot and is pretty much mandatory for HR functions to work. So companies are paying up.

 

[yRaz]

LinkedIn premium costs a lot and is pretty much mandatory for HR functions to work. So companies are paying up.

What in the world does HR use LinkedIn for?

 

[The Talking Tech]

Xbox should be very easy to manage and be successful as all it needs it's a commitment from executives to brand loyalty through and through, and strip down Gamepass to offer 1 year old games and older to give their own new titles a fighting chance to be financially successful...but Microsoft's greed into turning all gamers into Gamepass subscribers, pissing off the fans by sharing games with other platforms and their sky high expectations trips the brand into failure.

 

[Dreadcthulhu]

What in the world does HR use LinkedIn for?

No sane man knows what rites & rituals the HR covens use LinkedIn for, their workings being so opaque and hidden from the light of the outside world. But to cross the HR covens is dangerous, to both one's occupation and reputation. Thus, those who call themselves corporate leaders pay the Dane-geld and approve the LinkedIn funding, appeasing HR for another quarter, never questioning their dark mysteries.

 

[Dreadcthulhu]

This was an accidental double post.