Microsoft, Google Cut Hundreds Of Cloud Jobs Amid Record Data Center Spending

Two tech giants that are ramping up spending on new data centers to support artificial intelligence are now laying off hundreds of employees in their cloud businesses, even as revenues in that segment surge. 

Microsoft is cutting as many as 1,500 jobs in its Azure cloud division, announcing the layoffs less than a week after Alphabet cut at least 100 workers within its Google Cloud segment. The reductions come as tech firms face pressure from Wall Street to balance billions in new spending on AI data center infrastructure with streamlined costs elsewhere. 

The job cuts at Microsoft, first reported by Business Insider, largely targeted a division within Azure called Strategic Missions and Technologies that focused on “moonshots” like quantum computing and space industry products — projects unlikely to drive revenue in the near term. 

Google Cloud’s Go To Market teams bore the brunt of the layoffs at Alphabet, particularly the division’s Asia-Pacific group. Consulting, partner engineering and sustainability teams were also impacted, according to Business Insider. Some of the laid-off employees were reportedly recent hires who had yet to complete the company’s onboarding process. 

“Organizational and workforce adjustments are a necessary and regular part of managing our business,” a Microsoft spokesperson told Reuters. “We will continue to prioritize and invest in strategic growth areas for our future and in support of our customers and partners." 

Both Microsoft and Google are cutting jobs from cloud businesses that are experiencing record growth amid a wave of demand, driven in no small part by AI. Azure revenues shot up 31% in the first quarter of this year, while Microsoft’s share of the cloud market is steadily increasing. Meanwhile, Q1 saw 30% revenue growth from Google’s cloud business. 

But this growth has also been accompanied by unprecedented spending on data centers and other infrastructure needed to support AI that shows no signs of slowing.

Microsoft and Google both indicated in April that they plan to spend billions more than anticipated on building and leasing new data centers. While Microsoft’s Q1 capital expenditures increased nearly 22% from the previous three months, the company still expects its infrastructure spending to continue to increase materially throughout the year.

Google’s capex increased 9% last quarter, with CEO Sundar Pichai telling analysts that the firm’s spending on data centers and other digital infrastructure will remain at or above current levels for the rest of the year. 

“We have committed to making the investments required to keep us at the leading edge in technical infrastructure,” Pichai said. “You can see that from the increases in our capital expenditures. This will fuel growth in the cloud and help us push the frontiers of AI models and enable innovation.”

As spending on the infrastructure to support AI has ballooned, tech firms have come under pressure from investors to show that these expensive pivots toward AI are not reckless spending sprees or long-term bets that may never bear fruit. Wall Street is increasingly looking at the major cloud providers to demonstrate that their massive capital expenditures are being at least partially mitigated by reduced costs elsewhere in the business.

Often, this has meant job cuts.

Microsoft laid off around 1,900 employees in its Activision Blizzard and Xbox divisions in January after announcing plans to cut 10,000 jobs a year earlier. Alphabet eliminated 800 jobs in January and announced a second round of layoffs in April focused on its finance and real estate units. 

Following the April job cuts, Alphabet’s leadership emphasized the role of workforce reduction in ensuring that the firm’s spending on infrastructure and other expenses related to its AI pivot remain sustainable. 

“We remain focused on long-term efforts to durably re-engineer our cost base,” Pichai said on its Q1 earnings call. “We continue to manage our headcount growth and align teams with our highest priority areas.”

At Microsoft, former cloud chief Jason Zander directly linked this week’s job cuts to the company’s massive spending on data centers and other AI expenses. In a leaked memo, Zander, who heads Azure’s now-depleted Strategic Missions and Technologies division, told employees explicitly that the layoffs were intended to support Microsoft’s AI investment, according to a Business Insider report. 

“Our clear focus as a company is to define the AI wave and empower all our customers to succeed in the adoption of this transformative technology," Zander wrote, according to Business Insider. "Along the way, we make decisions that align with our long-term vision and strategy while ensuring the sustainability and growth of Microsoft.”