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flag Xbox hardware sales plummeted 32% in Q2 2026, dragging down gaming revenue despite overall company growth.

flag Microsoft's gaming division saw a 9% year-over-year revenue decline in Q2 FY2026, driven by a 32% drop in Xbox hardware sales and a 5% fall in content and services revenue, despite overall company revenue rising 17% to $81.3 billion. flag The hardware slump was attributed to high console prices, supply constraints from memory shortages, weak first-party game performance, and a shift toward cross-platform releases. flag While Xbox Game Pass and cloud gaming showed strength with record PC players and streaming hours, the company continues to prioritize AI and cloud growth, with Azure and AI infrastructure fueling a 26% rise in cloud revenue. flag Microsoft remains focused on software and subscriptions, betting on titles like Forza Horizon 6 and Fable to revive interest, as it shifts away from hardware-centric strategies.

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