Xbox Hardware Slump Signals a Shift from Consoles to Services and AI

Microsoft’s latest earnings show Xbox hardware revenue down 32% year over year and the gaming division down 7%, with the company attributing the drop to a weak late-2025 release slate. While Ninja Gaiden 4 and The Outer Worlds 2 are in the works and Flight Simulator arrived on PS5, the Xbox Series X/S remains a shrinking part of Microsoft’s business as the company pivots toward platform/services and AI initiatives, aided by a Game Pass price hike and churn, with subscriber numbers not disclosed.