Xbox revenue drops 10 percent as Microsoft’s cloud and AI business surges

Cloud revenue soared to $59 billion, while Xbox services and hardware sales took a hit.

Xbox is having yet another tough quarter, as revenue from content and services like its Game Pass subscription dipped 10 percent over the past few months. At the same time, Xbox hardware sales declined 13 percent, according to Microsoft’s fourth-quarter earnings report released on Wednesday.

The news comes just weeks after Xbox head Asha Sharma announced a “reset” plan for Xbox that included sweeping layoffs and the spinoff of four games studios, including South of Midnight developer Compulsion Games and Psychonauts creator Double Fine Productions.

Sharma has also made some other big changes to Xbox, including lowering GamePass prices , testing free, ad-supported cloud gaming , and making Gears of War: E-Day and Clockwork Revolution Xbox exclusives. Xbox also plans to raise the prices of its consoles by $100 and more starting August 1st .

“When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth,” Microsoft CEO Satya Nadella said during an earnings call. He added that Microsoft expects “to return the business to growth in fiscal 2027.”

As Microsoft ramps up efforts in AI , its cloud business has pushed the company’s overall revenue to $90 billion. Microsoft Cloud revenue soared 27 percent to $59.3 billion over the past few months, while revenue from its productivity business, which includes services like Microsoft 365 and LinkedIn, spiked 14 percent to $37.8 billion. Microsoft 365 Copilot also reached more than 30 million paid seats and Azure revenue hit more than $100 billion for the first time.

But Xbox wasn’t Microsoft’s only segment on the decline. The company’s Windows OEM and devices segment decreased 7 percent “driven by lower PC market demand.” Microsoft took the wraps off a new Surface device with RTX Spark, Nvidia’s new Arm-based processor in June, and is also starting to make quality-of-life changes to Windows 11 as it aims to regain user trust .

Update, July 29th: Added a statement from Satya Nadella.

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