Key Points

  • Microsoft Chief Financial Officer Amy Hood said Wednesday that the company expects its headcount to decline further in the next fiscal year, highlighting a broader trend of cost control in the tech industry amid a surge in AI investment.
  • Microsoft's headcount declined year over year in the third quarter of fiscal 2026, which ended March 31. Hood said on the earnings call that the company is focused on building "high-performing teams that operate with speed and agility" and expects this trend to continue, with headcount declining further year over year in the next fiscal year.
  • The company also disclosed that a recently introduced voluntary retirement program will result in a one-time charge of approximately $900 million, expected to be recorded in fourth-quarter operating expenses.

In-Depth Analysis

According to outplacement firm Challenger, Gray & Christmas, the tech industry announced 18,720 layoffs in March, more than any other sector, bringing the total for the first quarter of 2026 to 52,050, up 40% year over year. This marks the industry's highest first-quarter total since 2023, when 102,391 layoffs were recorded in the same period.

Microsoft did not disclose the specific scale, exact timing, or affected business units of the latest layoffs. The company previously reported a headcount of approximately 228,000 in June 2025, flat compared with the prior year.

Microsoft's total revenue for the third quarter was $82.9 billion, up 18% year over year, driven primarily by continued strong performance in cloud and AI businesses. The company said its AI business annualized revenue run rate has reached $37 billion, up 123% year over year; Azure cloud revenue grew 40%, reflecting sustained demand for both AI and non-AI workloads.

The software giant continues to invest heavily in AI while reducing its workforce. Chief Executive Officer Satya Nadella told investors Wednesday: "We are actively adding capacity to match demand signals and have announced new data center investments across four continents."

Hood said the company expects capital expenditures to exceed $40 billion this quarter "as we continue to bring more capacity online."

Other major tech companies are showing a similar pattern: rising AI investment alongside tighter workforce management.

Meta Platforms had more than 77,900 employees at the end of the first quarter of fiscal 2026, down 1% from the fourth quarter. Chief Financial Officer Susan Li explained on Wednesday's earnings call that this "reflects the net result of optimization measures in certain functions offset by hiring in priority areas such as monetization and infrastructure."

Li said management has communicated plans to reduce headcount in May "internally."

She said: "We believe a leaner operating model will enable us to move faster, while also helping to offset the significant investments we are making."

Li also noted that Meta's total expenses for the quarter were $33.4 billion, up 35% year over year, partly due to increased employee compensation from hiring in technical roles, especially AI talent, over the past year.