• Next Xbox devices will use AMD chips, including for cloud gaming.
• Move in line with plan to work in devices, not just consoles.

Microsoft’s next Xbox console will run on AMD chips, continuing a partnership that now extends to consoles and cloud infrastructure.

Xbox president Sarah Bond said it’s has signed a multi-year deal with AMD to co-design custom silicon for Xbox devices, including traditional consoles and handheld systems. “Together with AMD we’re advancing the state of art in gaming silicon,” she said, and pointed to AI as a way to boost graphics and in-game experiences.

The deal confirms Microsoft’s broader strategy to extend Xbox beyond consoles. The brand has slowly shifted from hardware-focused updates every few years to a platform that supports game access in PCs, mobile, handhelds, and smart TVs, the latter by relying on cloud computing.

The shift means Microsoft’s custom gaming chips also need to work in its Azure data centres. Xbox Cloud Gaming, first launched in 2020, lets users stream games without a console. The service uses rack-mounted Xbox Series X blades that support up to four players per server.

The future setup hasn’t been confirmed, but Microsoft could choose to virtualise the next Xbox entirely – ditching physical blades for software-defined systems. The company has explored offloading parts of game processing to the cloud, and set up a team to support cloud-native games. So far, that effort hasn’t gained much traction.

The current Xbox Series X and S consoles are built in-house, but Microsoft is taking a different approach with handheld gaming. The upcoming Xbox Ally device, made by Asus, runs on AMD processors. Bond said the goal is to make Xbox games available anywhere, without locking players into a single piece of hardware.

With the recent exception of the Steam Deck, the dedicated handheld gaming device industry is littered with failures. Google’s Stadia service shut down in 2023 after struggling with content and performance issues. Amazon’s Luna, which runs on AWS, is still live but has limited reach and unclear adoption numbers. Nvidia’s GeForce Now claims 25 million users and offers a different use model – letting players stream games they already own on a virtual machine, rather than subscribe to a discreet catalogue of titles.

The history of cloud-based gaming shows a pattern of limited market penetration. Sony entered the cloud space early, buying Gaikai and OnLive in 2012. The PlayStation Plus Premium tier still offers cloud gaming, but Sony hasn’t shared recent user figures. In 2020, the service had 2.2 million users. PlayStation’s use of custom chip architecture in older consoles, especially the PS3, added complexity and cost to its streaming model.

Without its own global infrastructure, Sony said in 2019 it would work with Microsoft on potential Azure-powered cloud gaming projects, though few public updates have followed. Nintendo has taken a more limited route, offering cloud versions of select games through smaller partners like Ubitus.

While Microsoft appears to have the most mature cloud gaming setup, its broader Xbox strategy has faced setbacks. The company spent $69 billion to acquire Activision Blizzard, but that deal hasn’t paid off in the way some tech industry and financial observers expected. A series of under-performing titles led Xbox chief Phil Spencer to apologise publicly.

Hardware sales of the Xbox continue to trail PlayStation, and some fans have pushed back against Microsoft’s decision to make more games cross-platform – especially those who bought Xbox consoles expecting exclusive titles.

The Xbox business has also undergone internal personnel cuts. Thousands of roles have been eliminated in the past few years, and the company has scaled back some of its hardware plans. Even so, Xbox revenue rose in the last quarter, driven by subscription and services income, which include cloud gaming.