Microsoft (NASDAQ:MSFT) is making a bold pivot. After Chinese upstart DeepSeek dropped its open-source AI model R1with performance comparable to OpenAI at a tiny fraction of the costSatya Nadella didn’t panic. He leaned in. Within days, Microsoft engineers were testing R1, vetting it for security, and plugging it into Azure. Customers can now rent R1 next to OpenAI’s priciest tools, and Microsoft still takes a cut. Nadella’s bet? AI is rapidly becoming a commodityand when that happens, the real power sits with whoever owns the pipes, not the product.
But the bigger story is unfolding behind the scenes. Microsoft’s once-cozy relationship with OpenAI has cooled. The four-day leadership coup at OpenAI in late 2023where Sam Altman was fired, hired by Microsoft, then reinstatedshook the partnership. Nadella, once the startup’s biggest backer, is now hedging hard. He’s ramped up development of in-house models like MAI-2, poached the entire Inflection AI team for $650 million, and is building cheaper, task-specific models that can run Copilot without OpenAI at all. One Microsoft exec called it insurancein case the startup’s rocketship hits turbulence.
Despite the drama, Microsoft’s grip on the enterprise stack is holding strong. Over 70% of Fortune 500 companies use Copilot. GitHub Copilot now has more than 15 million users. And while many employees quietly prefer ChatGPT, Microsoft keeps winning the infrastructure game. It doesn’t matter if the AI brain behind Copilot comes from OpenAI, DeepSeek, or Microsoft’s own labswhat matters is that it runs on Azure, integrates with Teams, and sells add-ons like Copilot Studio. Nadella’s endgame isn’t to win the model race. It’s to own the platform AI runs onjust like Windows won the PC.
This article first appeared on GuruFocus.
