Despite spending billions on AI, Microsoft is the worst-performing member of the Magnificent Seven this year, with shares down 20% in 2026 as investors question its AI strategy. Now, the software giant is trying to turn things around by making big changes to one of its weakest divisions: Xbox.

“Our business today is not healthy,” Xbox CEO Asha Sharma wrote in an internal email this morning. That’s a bit of an understatement: Xbox revenue fell 5% year over year in the March quarter, and its profit margin shrank to just 3% in the fiscal year ended June, according to the Wall Street Journal.

That’s why Xbox is cutting 3,200 jobs—roughly 20% of its workforce—through fiscal 2027, with 1,600 employees leaving today and the remainder departing over the next year. The company will also divest four game studios and begin separating from a fifth, focusing more of its spending on its biggest franchises, including Minecraft, Candy Crush, and Fallout.

Microsoft shares fell 0.96% today.

What went wrong

“We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio,” Sharma noted. “In a typical year, we lost 64 cents for every dollar we invested.”

That declaration is a stark departure from the company’s previous strategy of buying every gaming studio in sight. Between 2014 and 2022, Microsoft spent tens of billions of dollars acquiring companies like Mojang, Obsidian Studios, and Activision Blizzard in an effort to build out its Game Pass streaming service. The company wanted it to be the “Netflix of games,” but instead, it’s looking more like the Quibi of games.

“To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected,” Sharma admitted. “As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”

Beyond Xbox

Sharma isn’t exaggerating. AI’s insatiable demand for memory chips has sent component costs soaring, squeezing console makers across the industry. As a result, Microsoft is preparing to jack up Xbox prices another $100 to $150 in August—after having already raised prices twice last year—while Nintendo is expected to increase Switch 2 prices in September.

It’s not just the gaming business that’s going through some big changes: Including today’s Xbox layoffs, Microsoft will let go of 4,800 employees across the company, or about 2.1% of its global headcount. That’s in addition to several layoff rounds last year, as well as a voluntary retirement program that kicked off in April. All of which suggests the company’s turnaround still has a long way to go.—SY

🟢 What’s up

• IBM gained 3.45% on a Bank of America price-target hike and expectations for a strong second quarter.
• Micron rose 0.94% by securing a long-term agreement to supply memory and storage chips for Ford’s next-generation vehicles.
• Broadcom climbed 3.73% after extending its custom chip partnership with Apple through 2031.
• AXT surged 12.19% on a supply agreement with Coherent that will expand production capacity for a Beijing plant through 2028.
• AMD advanced 6.61% after Goldman Sachs increased its price target due to stronger AI-demand expectations.

What’s down

• O’Reilly Automotive fell 6.66% as investors weighed the company’s cash bid for Genuine Parts Company’s autoparts business.
• Solstice Advanced Materials slipped 15.14% despite merger talks with Element Solutions that could create a $27 billion company.
• ZIM Integrated Shipping Services dropped 7.31% after uncertainty emerged over its planned merger with Hapag-Lloyd.

Once upon a time, it was super trendy for poorly performing companies to declare they were going to buy bitcoin (or solana, or dogecoin, or whatever) and transform themselves into digital asset treasuries.

Now crypto is crashing, and everyone wants out—even Strategy, which accrued a hoard of bitcoin at one point worth over $52 billion to cement itself as the leading crypto treasury. But last week it sold $216 million of bitcoin—its largest sale ever, and only its third since 2020—as it tries to claw back recent losses.

Strategy’s not the only company pivoting away from crypto. Bitcoin miners spent years minting new crypto coins using high-powered digital infrastructure—the exact sort of infrastructure that AI companies are gobbling up these days. That’s helped companies like Galaxy Digital, Applied Digital, and Cipher Digital (noticing a pattern?) become “AI landlords”, leasing their datacenters and the electricity powering them to hyperscalers.

That’s why TeraWulf popped 4.86% today: The former crypto miner just inked a 20-year lease with Anthropic, letting the AI startup use one of its datacenters in Kentucky in exchange for an estimated $19 billion in revenue. It’s a great deal for TeraWulf, whose shares have soared 93.3% in 2026, as its pivot away from crypto and toward AI takes shape. Too bad Strategy can’t do the same thing—its shares have tumbled 33.68% this year.—MR

Wall Street agrees that the AI trade is far from over—but the pros just can’t decide which corner of the market is the next big thing.

The semiconductor rally has been taking a breather on the heels of a mind-boggling run in the first half of the year: The popular Philadelphia Semiconductor Index soared 99% between the beginning of 2026 and its all-time high on June 22, but is now down roughly 12% from that peak.

According to a note from Morgan Stanley chief US equity strategist Mike Wilson, the carnage in semis (and especially in memory stocks) won’t end anytime soon: After all, earnings revisions for the sector are at a historical high, and investors are understandably wondering just how much juice is left, given sky-high valuations.

But Wilson argues that a downturn in semis isn’t evidence that the AI boom as a whole is overblown. In fact, he thinks that this is a healthy correction, and the fourth normal dip since ChatGPT’s launch back in 2022.

“We’ve seen relative performance oscillate between the various types of AI beneficiaries over the past couple of years and we expect those rotations to continue as the cycle evolves,” Wilson wrote today. “This is simply the next rotation, in our view—Semis to the Hyperscalers and other broadening trades.”

It’s time for a reshuffling: Now, Wilson says it’s time for investors to shift focus from semiconductors to hyperscalers (think Microsoft, Amazon, and Alphabet). For one, they’ve underperformed relative to chipmakers over the past few months, which means that the chief concern facing these companies—gargantuan capex spending—has already been priced into their shares. News that Meta is selling excess computing power could be bullish for the sector, too, according to Wilson.

Wilson also argues that a bigger market shift is coming: Instead of mega-caps carrying the market, gains will come from a wider array of sectors and companies. He points to consumer discretionary stocks, which he says should get a boost from falling oil prices and easing inflation. He also recommends biotech, given that the sector usually performs well when interest rates fall; M&A in the sector is already increasing.

Plenty of ways to skin the AI cat

But other Wall Street analysts are taking a different approach: A group of JPMorgan strategists argue that right now is the best time to buy the dip in semiconductors, given that the imbalance in supply and demand won’t even out until 2028.

And unlike Wilson, these analysts are less excited about the rest of the AI trade, including the Magnificent Seven. They also argue that investors should be aware of the industries most susceptible to AI “cannibalization,” including media, software, and business services.

Others on the Street believe that chips are still king, but that it’s time to look elsewhere in the supply chain. For example, UBS global head of equities Ulrike Hoffmann-Burchardi thinks that the hardware downturn is an opportunity to double down on the “picks and shovels” of the AI boom.

“Supply bottlenecks in the AI value chain have continued to move upstream—from GPU systems in 2023-25, server components over the past year, to potentially semiconductor equipment over the next six months,” Hoffmann-Burchardi wrote. “We favor semiconductor equipment, foundries, CPU-related compute infrastructure, and memory within the “picks and shovels” of the AI build-out, but we also see value in defensive areas such as payment networks and data center REITs.”

We’ll give you the same advice we give ourselves after devouring a party-size bag of Doritos: Chips are good—but you need some variety.—LB

• Tesla just rolled out robo-taxis in Miami.
• Remember ESG investing? Proponents are hoping the strategy could make a quiet comeback.
• Silver is down 50% from its peak at the start of the year—but some see a silver lining.
• Oracle is suffering through its longest losing streak since 2021.
• Trump’s plan to create a Strategic Bitcoin Reserve is facing headwinds.
• Our degenerate casino economy now includes old-fashioned trading cards, too.

We’re still stuck in that awkward gap between earnings seasons, and there’s no economic reports on deck for tomorrow. But there is something going on tomorrow that all investors should be aware of: the debut of SpaceX on the Nasdaq 100.

The Nasdaq 100 is an index tracking the 100 biggest non-financial companies on the Nasdaq, which is in turn tracked by hundreds of mutual funds and ETFs with an estimated $800 billion in total assets under management. When SpaceX joins the Nasdaq 100, those funds will automatically buy shares of the space stock in order to mirror the index, opening the floodgates for all that money to pour into Elon Musk’s pet project.

That could provide SpaceX with a much-needed boost—shares are down 29% from their all-time high of $225 on June 16—but it could also expose those index-tracking funds to some serious volatility. Remember, the vast majority of SpaceX shares are still tied up by insiders who aren’t allowed to sell yet. But when those sales open, the stock will likely sag, and investors with funds that automatically track the Nasdaq 100 could be left holding the bag.