Why is Microsoft stock falling today?

Microsoft shares MSFT declined on Thursday after a report indicated that the company's Xbox division is preparing significant layoffs and budget reductions, overshadowing continued optimism surrounding Microsoft's artificial intelligence strategy.

According to a Bloomberg report, Microsoft's gaming division is expected to announce layoffs shortly after the company's fiscal year ends on June 30.

The report said Xbox is also planning spending reductions across marketing and other areas as new CEO Asha Sharma seeks to improve profitability and address declining revenue within the gaming business.

The reported restructuring comes at a time when investors remain focused on Microsoft's broader AI and cloud computing opportunities, which continue to attract favorable commentary from Wall Street analysts.

Xbox restructuring weighs on sentiment

The prospect of workforce reductions and budget cuts created a near-term overhang for Microsoft shares.

According to the report, the Xbox division is preparing significant operational changes aimed at improving margins.

The layoffs are expected to occur shortly after the close of Microsoft's fiscal year, while additional cost-cutting measures could affect marketing and other spending categories.

Although Microsoft has not publicly detailed the reported plans, the news introduced uncertainty around one of the company's major consumer-facing businesses.

The weakness in Microsoft's stock came even as broader technology shares participated in Thursday's market advance.

Analysts highlight Copilot and AI growth

Despite concerns surrounding Xbox, analysts continue to point to artificial intelligence as a major long-term growth driver for Microsoft.

BNP Paribas reiterated Microsoft as one of its preferred AI software and cloud infrastructure investments.

Analyst Stefan Slowinski cited accelerating adoption of Copilot, expanding enterprise deployments and the potential for Microsoft to evolve toward a higher-value pricing model that combines software subscriptions with usage-based consumption.

Following meetings with company management, Slowinski said Microsoft could exceed its target of more than 25 million Copilot seats in the fiscal fourth quarter.

The analyst pointed to stronger customer engagement, ongoing product improvements, and large-scale deployments, including NHS England's rollout of 500,000 Copilot seats.

Slowinski also noted Microsoft's commitment to investing heavily in artificial intelligence infrastructure, describing the opportunity as “generational.”

BNP Paribas maintained its Outperform rating and $555 price target on Microsoft shares, representing roughly 40% upside from recent levels.

Technical picture remains challenging

From a technical perspective, Microsoft shares remain below several key moving averages despite periodic rebounds.

The stock is trading 7.7% below its 20-day simple moving average of $421.43 and 14.5% below its 200-day simple moving average of $454.86.

It also remains approximately 5% to 6% below its 50-day and 100-day averages.

Momentum indicators suggest investors remain cautious.

The Moving Average Convergence Divergence (MACD) indicator remains below its signal line, while the histogram remains negative, pointing to weakening upside momentum.

The stock also continues to trade under the influence of a "death cross" pattern that emerged in January, when the 50-day moving average moved below the 200-day moving average.