Microsoft Is Going Multi-Model with Copilot. Does the Enterprise King Win Again?
Key Points
Microsoft's huge bet on OpenAI may have backfired, at least for its Copilot AI assistant.
The company is shifting Copilot to a multi-model agentic product, which has some significant advantages.
Microsoft's stock is rarely this cheap, and it seems more like an opportunity than a value trap.
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Microsoft (NASDAQ: MSFT) is, on the surface, a top artificial intelligence (AI) stock. Its investment and partnership with OpenAI has been lucrative, and AI demand is boosting its Azure cloud services business. However, it's not all good.
Copilot, Microsoft's AI assistant app, has whiffed with consumers and only has 15 million subscriptions among the 450 million commercial seats paying for Microsoft's productivity software.
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Some investors are worried, and the stock is trading down 31% from its high, one of Microsoft's worst declines in recent memory. But recent announcements indicate that Microsoft is changing course, and the new plan could be a big winner.
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Microsoft's pivot to multiple AI models could save Copilot
Copilot's reliance on OpenAI's frontier models began to work against it, especially as Anthropic's Claude became popular with enterprise users. To Microsoft's credit, it realized that and has shifted to a multi-model agentic approach.
Microsoft recently announced new Copilot features for early access users, such as Council, which compares ChatGPT and Claude responses side by side, and Critique, which generates ChatGPT responses and then fact-checks them with Claude.
Features like these position Copilot as an interface on top of the AI models. Essentially, Microsoft no longer needs to bet on the winning horse. It can simply play the field, making AI just another enterprise tool that Microsoft can control access to.
Companies are still primarily experimenting with AI apps. If you ask most enterprise decision-makers, they would probably rather use AI that's already easily accessible to them. It's the path of least time, money, and effort. Copilot can still make up quite a bit of ground if it can improve enough throughout this experimentation and adoption phase, before more companies begin committing to other products.
The stock is rarely this inexpensive
The stock currently trades at 23 times Microsoft's trailing 12-month earnings, about 30% below its 10-year average. Meanwhile, analysts estimate Microsoft's earnings will grow by an average of 13% to 14% annually over the long term -- plenty of growth to justify buying at this valuation.
Microsoft does face some genuine risks. Copilot must do far better moving forward. Microsoft also has approximately 45% of its remaining commercial bookings tied to OpenAI. That said, Microsoft stock doesn't fall this much very often, nor does it typically become this cheap.
The market seems to be treating Microsoft as if it's no longer the world-class company it's been for years. Meanwhile, earnings will likely continue going up. Despite the risks, it seems far too soon to make such a drastic indictment of the company or the stock. The odds seem pretty good that investors will wish they had bought shares at these prices.
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Justin Pope has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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