Rumours began circulating that Microsoft would be pulling out of the console market after reports suggested Microsoft was scaling back its hardware division to focus on cloud services and multi-platform publishing.

The company has now dismissed those claims, saying it is “actively investing in the future of first-party consoles and devices”.

A Microsoft spokesperson told Windows Central: “We are actively investing in our future first-party consoles and devices designed, engineered and built by Xbox.

“For more details, the community can revisit our agreement announcement with AMD.”

Windows Central reported that the next Xbox is still on track for its planned 2026 release window, with early developer kits already in testing.

Sources close to the project said the upcoming system will focus heavily on AI-assisted game development tools, advanced upscaling technology, and deeper Windows integration, reflecting Microsoft’s broader push into AI across its ecosystem.

The new console is also expected to feature major backward compatibility improvements and full support for Xbox Cloud Gaming, blurring the line between local and streamed play.

Industry insiders believe Microsoft is positioning its next system as a hybrid between traditional hardware and cloud-enabled services - a step that could differentiate it from Sony’s upcoming PlayStation 6.

Xbox leadership, including boss Phil Spencer, is said to have recently reaffirmed its commitment to hardware innovation after a period of uncertainty sparked by studio closures and strategy shifts.

Spencer reportedly told staff that Xbox is “more committed than ever” to building devices that support the company’s long-term vision for gaming.