Microsoft Cuts 20% of Xbox Staff, Apple Locks In Broadcom for AI Chips

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Monday, July 6th. In today's episode, we'll tell you why Microsoft is cutting thousands of jobs and resetting their Xbox strategy. We'll also tell you about a brand new chip deal between Broadcom and Apple. Then stick around to the end of the show to find out why a giant gas station is attracting World Cup tourists. We got a great show for you today.
Let's go.
Markets are coming off a pretty weird but winning holiday short and weak. Last week, the S&P 500 gained 1.8%, while the NASDAQ added 2.1%. And I guess I have to mention the Dow here. It was up 2% and finished last week at record highs. Still don't care about the Dow, though. You know, there seems to be a lot of volatility right now in the market, especially with chip stocks. It feels like the SOX Semiconductor Index is going up or down like 4 to 5% on a daily basis, which could be a sign that the market can't make up its mind on what to do with the AI trade right now. You know, one day there seems to be a ton of optimism, the next day there's doom and gloom. So the market is bouncing headline to headline when it comes to AI. But what is clear, though, is that the money is rotating into other corners of the market. And the best example of that is Small Caps. The Russell 2000 Index, which tracks smaller companies, climbed about 22% in the first six months of the year. That's the best first half performance by the Russell since 1991 It even beat the NASDAQ by around nine percentage points, which is the biggest first half out performance since 2006 And that's notable because this is a big change from what the last few years have looked like, where small caps have basically been ignored by investors, while NVIDIA, Micron and other big tech names have gotten all the attention. So one of the things I'll be watching for in the second half of 2026 is whether this small cap rally continues. And also what's going to happen to the AI trade. Personally, I'm keeping my eye on some of the big tech names like Microsoft and Meta that have been beaten up recently. I think they could be in for a comeback in the second half of the year. Now looking ahead to this week, it's a relatively quiet week when it comes to economic data, but there is one report the entire market will be watching, which is Samsung's earnings. Samsung is one of the three major memory makers in the world, so what they report and say about memory chip demand could set the tone for chips and AI stocks this week. Samsung stock has doubled in the last three months, so expectations are really high going into this earnings report. Analysts are expecting Samsung to report operating profit of about $55 billion for the quarter, which would be an 18-fold jump from the same quarter last year, which just blows my mind. Well, if Samsung delivers a beat, it could calm the nerves around the AI trade, but if Samsung disappoints even by a little bit, then chip stocks could get hit again this week. We'll recap the earnings report tomorrow along with everything else happening in the market. So if you're new here, definitely get subscribed to the podcast and tune in every day to stay in the loop.
Let's run through some headlines, starting with Microsoft. Microsoft announced this morning that they are cutting thousands of jobs, and this time the Xbox division is taking the biggest hit. Microsoft is cutting about 4,800 jobs with about 3,200 of those cuts happening at Xbox, which is about 20% of the entire gaming division. On top of that, Xbox is divesting four of its gaming studios, so this is a total strategy shift for the company. This is a clear admission that Microsoft's strategy to go all in on Game Pass and cloud gaming over the last few years did not work. Remember Microsoft spent a fortune buying up gaming studios, including $69 billion acquisition for Activision Blizzard, which is the maker of Call of Duty. Microsoft's plan was to put all these games on Game Pass, which is like a monthly gaming subscription service, but Game Pass' growth has plateaued, so now Microsoft is selling back the gaming studios and doing a full reset. New Xbox CEO Asha Sharma was brutally honest in a memo to employees saying that Xbox operates at margins 3 to 10 times lower than comparable businesses and that in a typical year, Xbox was losing 64 cents for every dollar it invested. So the business was in rough shape and it probably needed a reset like this. And here's the thing, AI probably played a role in this decision as well. Microsoft is one of the companies spending hundreds of billions of dollars on AI data centers and AI infrastructure, so now every business inside Microsoft has to justify its existence. And if you see Xbox losing all that money, I mean, it's hard to justify that. And it probably doesn't help that Xbox's hardware sales have also been weak compared to Nintendo and Sony. And then to make matters worse, Microsoft just had to raise prices on their Xbox hardware because of higher memory prices from the AI boom, which Microsoft is partially responsible for causing. So that's kind of funny how this is all playing out. So yeah, Microsoft continues to have a terrible year. Their stock has been the worst performer of all the mega cap tech names this year, down 19% as investors questioned their AI strategy and all the capex spending. But look, Microsoft reports earnings on July 29th, and that's gonna be a closely watched report to see if Microsoft can turn things around. Let's shift gears and talk about Broadcom because they just locked in Apple as a customer through 2031 Broadcom announced this morning that they are expanding a partnership with Apple to develop and supply custom chips. Now Broadcom and Apple go way back. Broadcom has been making the wireless and connectivity chips inside iPhones for years now. In fact, Apple accounts for roughly 20% of Broadcom's annual revenue. But lately the relationship has been a bit shaky because Apple has started to replace Broadcom's parts in the iPhone with their own in-house chips. But it seems like the two sides are back to working it together. Broadcom will help Apple develop and supply custom ASIC chips built specifically for AI. See right now Apple uses their M series chips for the servers that power Apple Intelligence. But according to Bloomberg, Apple has been working on its first dedicated AI server chip codenamed Bultra. So Broadcom will play a role in developing that chip. So yeah, this is a big win for Broadcom. And I gotta say, they've done a great job positioning themselves to be the arms dealer of the AI era. Broadcom now makes custom chips for Google, now Apple, Meta and OpenAI are also in the mix too. So whoever wins this AI race, Broadcom will get paid. Broadcom stock is up around 5% this morning at the time of this recording. And if you zoom out, the stock has gone up 38% over the past year. Apple stock is also up around 2% this morning. By the way, if you want a more in-depth discussion about Apple and AI and why they raise prices on their products and the impact that will have on their business, go check out my interview that I did with Bloomberg editor and Apple insider, Mark Gurman. We posted that interview yesterday. It was a great discussion. I'll put a link in the description.