Microsoft Corp. NASDAQ: MSFT has taken steps to reduce its reliance on AI models at the border, though not a direct declaration of protest. In June, the technology giant introduced its AI models (Microsoft AI or MAI) to all selected applications in the Office suite.
What this means for the user experience is an open question, but this is a clear margin play for Microsoft. The company competes in many areas of AI infrastructure development. In a way that makes this move about control manageable.
Instead of facing death by a thousand cuts for OpenAI and Anthropic (ie, frontier models), Microsoft is trying to expand its existing pipeline and deliver a strong return on investment (ROI) for its AI implementation. But will this be enough to change sentiment towards MSFT, which is down nearly 20% year to date?
Microsoft Expands MAI to Reduce Dependence on OpenAI
Here are the stories behind the stories. Bloomberg reported that Microsoft is quietly moving Excel and Outlook commands to MAI, its in-house model family, rather than to OpenAI or Anthropic. Tens of thousands of notifications per week are already running on Microsoft’s own technology.
That’s still a small slice of Copilot’s total traffic. OpenAI and Anthropic handle most of it today. But the direction of that journey is more important than the current divide, and Microsoft has made its intentions clear.
At Build 2026 in June, Microsoft unveiled seven MAI models, including its first thinking model, MAI-Thinking-1. The company says it’s similar to Anthropic’s Claude Opus 4.6 in coding functions. AI CEO Mustafa Suleyman puts it bluntly: “We pay a lot of money to Anthropic, so our goal is to reduce and eventually eliminate those costs.”
How Microsoft In-House AI Can Increase Profitability
For investors, the easiest way to think about this is as follows. Copilot is $30 per seat that, prior to MAI’s launch, ran on top of someone else’s expensive AI model automatically. All that information costs Microsoft money to process, and to replicate to hundreds of millions of Office users, that bill adds up quickly.
Owning a model instead of leasing it changes the equation completely. Microsoft doesn’t need MAI to win all customers. It just needs MAI to be good enough for everyday spreadsheet formulas and email drafts, at a fraction of the cost.
That’s the story of ROI. Microsoft will not win the AI arms race on raw intelligence. But it can compete more effectively by converting a leased cost center to a managed infrastructure.
Microsoft Uses MAI to Strengthen Its Competitive AI
Microsoft CEO Satya Nadella is reported to have said he fears Microsoft will become “the next IBM.” By that, he meant a company that lets someone else own a very important layer of technology. MAI is Microsoft’s answer to that fear.
Instead of a single point of AI dependency, Microsoft now uses a three-way hedge. It’s participating in OpenAI, embedding Anthropic’s Claude in Copilot, and increasingly relying on its own models when the economics make sense. That flexibility is arguably the biggest drain on any benchmark model.
It also protects Microsoft from the ticking clock. Microsoft’s current discounted price for OpenAI won’t last forever, and that deal isn’t scheduled to expire until 2032. Building a reliable in-house alternative now gives Microsoft leverage in any future renegotiations, rather than leaving it stuck paying whatever OpenAI or Anthropic decide to charge.
The Bear Case: The Risks of Microsoft’s AI Strategy
Before getting too bullish, a few caveats are worth weighing. This change is still in development, and Microsoft has not yet published a timeline for extending it further. Many of the Copilot functions still apply to foreign models today.
There is also the question of quality. Microsoft’s own materials frame MAI as previous generation Anthropic models, not current large language models (LLMs). If the MAI-enabled features feel worse, customer satisfaction may seem to outweigh the cost savings.
What it means for OpenAI and Anthropic
This is a warning to watch. Anthropic filed privately for an IPO in June, and OpenAI is reportedly preparing for a similar filing. Their biggest business distribution partner is now a competitor, building cheaper in-house alternatives.
That doesn’t mean OpenAI or Anthropic are in immediate trouble. Both still handle the bulk of Copilot’s AI traffic, and Microsoft has made it clear it’s not ending either relationship. But the “picks and shovels” trade has already become more difficult for anyone who bets only on third-party AI labs that remain very important.
Microsoft Stock Rebounds After Hitting 52-Week Low
Microsoft hit a 52-week low in late June. A 10% drop in that level is not a sign that all is well, but it does suggest that investors are leaning toward the stock’s value proposition.
At roughly 22x forward earnings, Microsoft trades at a discount to the S&P 500 and its history. An argument can be made that MSFT was undervalued when the sale began in November, and there is good reason to believe that it is undervalued now. The relative strength index reached oversold territory when the MSFT declined in June.
But the big story comes from analysts and institutions. MSFT’s price target of $559.84 is about 45% below its recent trading range. Also, of the 48 analysts tracked by MarketBeat, 41 give MSFT a buy rating, and seven rate it a Hold. Analysts are notoriously averse to being wrong, which may explain why some analysts have cut their price targets, but the overall sentiment remains bearish.
A similar expectation of vigilance can be found in its institutional identity. There is no doubt that purchases have decreased in the first two quarters of the year. But the buy still outweighs the sell, and with MSFT at 22x earnings, this could be an attractive target for a fund that has yet to leave the market and is looking to grow in the second quarter.
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