Xbox keeps sinking while Microsoft's AI business keeps soaring

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Bottom line: While Microsoft continues to ride the AI wave, Xbox continues to struggle. New CEO Asha Sharma recently began implementing plans for a radical course correction, but it is still too soon to predict their impact. The company's fourth-quarter financial results for 2026 show a 10% fall in Xbox content and services and a 13% decline in hardware revenue, while Microsoft's overall profits jumped by 31%.

While Xbox's 13% YoY drop in hardware revenue is not as bad as last quarter's 33% plummet, it still caps off a full year of uninterrupted declines. Price hikes and worrying PR surrounding the brand are likely the primary factors, and the situation is expected to worsen when Xbox Series S|X consoles become at least $100 more expensive starting in August.

Xbox content and services...

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