Microsoft lost its early AI lead after stumbling on OpenAI partnership and failed to build competitive consumer products, now racing to regain ground with in-house AI efforts.

Microsoft's stock fell 34% from October 2025 through March 2026, despite Azure's AI-related revenues more than doubling in the past year. Less than 4.5% of its 450 million Microsoft 365 customers pay for Copilot features, and its consumer Copilot chatbot lags ChatGPT, Gemini, and Claude.

In March 2024, Microsoft hired Mustafa Suleyman (a Google DeepMind cofounder) and licensed technology from his AI startup Inflection in a $650 million deal to build in-house frontier models. The first general-purpose model MAI tested publicly, MAI-1 preview in August 2025, ranked poorly on performance leaderboards and was never widely released.

Microsoft's exclusive partnership with OpenAI—formalized through $13 billion in total commitments starting with $1 billion in 2019—became a constraint: Microsoft's partnership prohibited it from training models beyond a certain size, limiting it to small language models. By early 2025, Anthropic's Claude topped leaderboards while Microsoft's Copilot offerings remained powered exclusively by GPT.