Microsoft is making one of its biggest leadership bets in gaming at a time when Xbox faces slowing growth, layoffs and rising investor pressure.
In a surprise shakeup, Microsoft has named AI executive Asha Sharma as chief executive officer of gaming, replacing longtime Xbox leader Phil Spencer. The move signals a strategic reset for the Xbox business and a renewed focus on console players after years of expanding into PC and mobile.
Spencer, who led Xbox since 2014 and was elevated to gaming CEO in 2022, is retiring. Xbox President Sarah Bond will also depart. Games studios chief Matt Booty becomes chief content officer and will report to Sharma.
Microsoft CEO Satya Nadella said in a blog post that Sharma was chosen for her consumer expertise. She previously held leadership roles at Instacart and Meta Platforms Inc.. She rejoined Microsoft two years ago as president of Core AI product.
A return to console roots
For much of the past decade, Microsoft has tried to diversify Xbox beyond its traditional console base. The strategy included aggressive acquisitions, most notably the $69 billion purchase of Activision Blizzard in 2023, one of the largest deals in tech history. Earlier acquisitions included Mojang Studios, maker of Minecraft, and Bethesda Softworks.
The goal was scale. Microsoft wanted to feed blockbuster titles into its Game Pass subscription service and reach players across console, PC and mobile. It also struck deals to bring major Xbox games to rival platforms owned by Sony Group Corp. and Nintendo Co..
But the strategy came with trade-offs. Some long-time Xbox fans felt sidelined. Selling premium titles at $70 generated higher margins than placing them on Game Pass. Subscription growth initially surged but later slowed. Microsoft responded by raising the monthly Game Pass price by 50 percent.
Spencer himself acknowledged the scale of the challenge. “We’ve been selling consoles to the same 200 million global households,” he told Bloomberg Businessweek in 2024. He previously admitted that the 2013 Xbox One “lost the worst generation to lose,” referring to a critical cycle in which Sony’s PlayStation gained ground.
Cost cuts and margin pressure
The financial strain has been visible. According to industry tracker Obsidian, Microsoft has laid off more than 2,500 gaming employees since 2024. The company has shut studios including Arkane Austin, the Initiative and Tango Gameworks. It has also canceled projects that were in development for years.
Bloomberg has reported that Microsoft finance chief Amy Hood has pressed the Xbox division to improve profitability. Executives recently set a goal of 30 percent “accountability margins,” a metric tied to operating performance.
Microsoft shares closed little changed at $397.23 in New York on Friday, reflecting cautious investor reaction to the leadership transition.
Why Asha Sharma
Sharma’s appointment stands out because she is not a traditional gaming executive. She has been overseeing Microsoft’s work with AI models, AI agents and developer tools. Early last year, when interest surged in China’s DeepSeek AI model, she led roughly 100 engineers who tested the software and delivered a version for Microsoft’s Azure cloud customers within days at Nadella’s direction.
Her background also includes serving as chief operating officer at Instacart, where she played a key role in the company’s IPO and its push toward profitability, according to her LinkedIn profile. She spent four years in product leadership at Meta and began her career at Microsoft in marketing before leaving in 2013.
In an email to staff, Sharma outlined her priorities. “We will recommit to our core Xbox fans and players, those who have invested with us for the past 25 years, and to the developers who build the expansive universes and experiences that are embraced by players across the world,” she wrote. “We will celebrate our roots with a renewed commitment to Xbox starting with console, which has shaped who we are.”
AI meets gaming strategy
For finance and tech investors, the question is whether Sharma can merge Microsoft’s AI ambitions with a more disciplined gaming strategy. Microsoft is one of the largest backers of OpenAI and has integrated AI tools across products from Azure to Office. Applying similar AI-driven efficiencies to game development, distribution and personalization could reshape margins over time.
At the same time, Xbox remains a cyclical hardware business competing against Sony’s PlayStation and Nintendo’s consoles in a market that has matured. Global console growth has slowed. Mobile gaming, once seen as the next frontier, has cooled after pandemic highs.
Microsoft’s reset suggests a more focused approach. Rebuild trust with console loyalists. Tighten costs. Improve margins. Leverage AI where it creates advantage.
The leadership change closes a defining chapter for Xbox under Spencer, who joined Microsoft as an intern in 1988 and moved to Xbox in 2001. It opens another, where financial discipline and artificial intelligence could shape the future of one of gaming’s biggest brands.
For investors watching Microsoft stock and the broader video game industry, the stakes are clear. Xbox must prove it can deliver growth without sacrificing profitability. Sharma’s tenure begins at a moment when both are under scrutiny.
