Microsoft’s Xbox console sales are getting squeezed, and the company is signaling it may not care in the way fans expect. CNBC points to Microsoft’s fiscal 2026 first-quarter earnings, where overall gaming revenue fell 2% year over year and Xbox hardware revenue dropped 29%.
The downturn is bigger than Xbox. Circana data cited by CNBC shows console hardware spending fell 27% year over year in November, usually a prime shopping month. Even in that ugly context, Xbox Series hardware took the hardest hit, down 70% versus the same month last year.
Instead of promising a classic comeback, Microsoft is leaning into a different pitch. Phil Spencer has said Microsoft is not trying to “out-console” Sony or Nintendo, and a source familiar with Xbox strategy said the company is looking at an open system that lets players jump between console, PC, and cloud gaming, plus entertainment beyond gaming.
Xbox is far behind
The gap looks brutal in the unit comparisons CNBC highlights. Nintendo said Switch 2 has sold 10.36 million units since it launched in June. Sony reported 9.2 million PlayStation 5 units sold in 2025.
For Xbox, CNBC cites VGChartz estimates putting Xbox Series S and Series X at about 1.7 million units sold this year, behind even the original Nintendo Switch at 3.4 million units in the same period. Microsoft declined to comment on sales figures, and it stopped reporting console unit shipments back in 2015 as the PlayStation lead widened.
Open system, fewer walls
Microsoft’s leaders have been laying the groundwork for this shift in public. Satya Nadella has talked about gaming being “everywhere in every platform,” and he suggested the next Xbox could blur the line between console and PC. Xbox president Sarah Bond has also pointed to the company’s newer Asus-built handheld devices, designed around cross-platform play and access to PC game stores.
On the software side, the walls are coming down too. Bond has called exclusives antiquated, and Microsoft has said the next “Halo” will come to PlayStation 5, a first for the franchise.
What to watch next
The bet is that subscriptions and streaming can outgrow shrinking hardware demand. CNBC cites Xbox reporting 34 million Game Pass subscribers in 2024, nearly $5 billion in Game Pass revenue over the last fiscal year, and cloud gaming hours up 45% year over year. Xbox Cloud Gaming now spans 30 countries, including India.
But the economics stay tricky. There was a big backlash after the Game Pass Ultimate price jumped 50% in October, and Microsoft is testing an ad-supported cloud option. If you’re deciding where to invest, watch two things next: whether Microsoft shows real “open system” features in the next-gen plan, and how it stacks up as new living-room rivals like Valve’s next-gen Steam Machine arrive.