Microsoft Corporation (NASDAQ:MSFT) has restructured its Xbox division, placing Obsidian Entertainment under the oversight of Bethesda. The change, announced Tuesday, aims to streamline decision-making and accelerate game releases as the company seeks to revitalize its gaming business.
Obsidian, acquired by Microsoft in 2018, will continue developing its current projects, including Grounded and an unannounced collaboration with Bethesda. Bethesda, which Microsoft acquired through its 2021 purchase of ZeniMax Media, will now directly supervise the studio. The move is part of a broader Xbox reorganization that also eliminated 268 roles across other studios and central teams.
The restructuring comes as Microsoft faces declining Xbox revenue. In the latest quarter, Xbox content and services revenue fell 10% year-over-year, while More Personal Computing revenue dropped 4% to $12.9 billion. Microsoft also recorded Xbox impairments and severance costs, adding pressure to the division. CEO Satya Nadella said the company is resetting Xbox for long-term growth and expects a return to growth in fiscal 2027.
Bethesda's portfolio includes some of the most successful franchises in gaming. Fallout 4 has sold over 35 million copies, Fallout Shelter has attracted more than 250 million players, and Fallout 76 has received nearly 70 updates. Starfield, Bethesda's latest major release, has amassed over 17 million players. However, Bethesda has not announced a release date or title for Obsidian's Fallout project. Fallout 5 is in pre-production as a long-range goal, while The Elder Scrolls VI remains the studio's primary focus.
The reorganization aims to eliminate duplicated decisions and reduce gaps between releases. By placing Obsidian under Bethesda, Microsoft hopes to better leverage the Fallout franchise and ensure more consistent output. However, the move carries risks: additional oversight could slow decision-making, and further layoffs might delay projects and hinder Xbox's growth prospects.
Investors are closely watching Microsoft's gaming segment, which has struggled despite a vast audience. Xbox's annual player base exceeds 1 billion, with 72 billion hours played, according to Xbox's June 10 update. Yet monetization remains a challenge, as reach alone does not guarantee bookings or margins. Microsoft guided Xbox content revenue to another mid-single-digit decline this quarter, underscoring the need for a turnaround.
Analysts remain broadly positive on Microsoft, though their targets largely reflect cloud and AI growth. RBC Capital Markets analyst Rishi Jaluria has a Buy rating and $640 target, implying 28.8% upside. Stifel's Brad Reback rates the stock Hold with a $530 target, while Wells Fargo's Michael Turrin has a Buy rating and $700 target. These targets are based on a recent price of $496.92, as of September 22, 2026.
Microsoft shares traded at $496.92 at 2:08 p.m. EDT, down 0.9% from Monday's close of $501.61. Volume was approximately 12.4 million shares. The stock's performance will depend on whether the Xbox restructuring can deliver tangible results and restore growth in the gaming division.
