Why Microsoft's Relatively Small Number of Paying Copilot Customers Could Be a Blessing in Disguise

If you're a large tech conglomerate, chances are you've probably built your own artificial intelligence models that can power AI chatbots and even agentic AI assistants that can automate or complete tasks typically done by humans. Microsoft (NASDAQ: MSFT) certainly falls into this group, with its AI chatbot and assistant Copilot, which can carry out a range of functions.

On its recent earnings call, Microsoft revealed that it had 15 million paying Copilot customers at the end of its most recent quarter, the first time the company has disclosed this number. While views on Copilot are somewhat mixed, I think many investors and analysts left feeling disappointed by the number, given Microsoft's broader customer base.

However, here's why it could be a blessing in disguise.

Image source: Getty Images.

It's not ChatGPT, but there is potential

Copilot serves many different functions. It has a chatbot that users can prompt with queries, similar to ChatGPT. Copilot can also be used as an assistant within Microsoft 365's suite of office tools, and users can also build agentic AI assistants without coding knowledge that can automate tasks and manage workflows.

The company has different pricing for various plans. For instance, enterprise pricing charges $30 per user per month. Microsoft 365 subscribers get basic Copilot chat for free, but additional services, such as more tools and higher usage limits, cost extra. While Microsoft grew paid Copilot users by 160% year over year, 15 million paying customers still doesn't seem like a lot when you consider that Microsoft 365 has over 450 million paid commercial seats.

But it's important to remember that converting free users to paid users is never easy. For instance, as of July 2025, ChatGPT reportedly had only 35 million paid plus or pro subscriptions, which cost $20 and $200 per month, respectively. At the time, that was about a 5% hit rate. With 15 million Copilot members, that's about a 3.3% hit rate among total Microsoft 365 subscribers.

Now, I'd argue ChatGPT's growth is much more impressive, given that it didn't have an existing user base to tap into. In theory, Microsoft should be able to cross-sell to its existing user base, although ChatGPT also had the first-mover advantage and has arguably had more publicity than anyone.

There has been some concern among Wall Street analysts, including those at UBS, who noted that Microsoft 365 has not seen revenue growth accelerate from Copilot, and also that their research has not seen a big "usage ramp."

The silver lining for Microsoft

The silver lining is that the relatively small number of paid Copilot users leaves plenty of room for Microsoft to keep growing Copilot and surprise to the upside in future quarters, generating revenue growth.

For instance, if Microsoft grew paid Copilot users by 160% again over the next year -- and it's not clear that they can do this -- that would translate into an additional $8.6 billion in revenue, assuming $30 per user per month, or $360 per year per user. That's equivalent to nearly 3% of Microsoft's projected $328 billion in revenue for its fiscal year 2026.

While investors are rightfully focused on Copilot's growth, I don't think it has to be a rival to ChatGPT, since Microsoft already has many strong businesses that offer value to customers. Microsoft also has significant equity stakes in both OpenAI and Anthropic, so it benefits if these major AI players succeed. While the company can't sit idle when it comes to AI, AI can also be positioned as a value-add within the company, rather than as the main product.

For example, Copilot needs to keep Microsoft 365 competitive among future rival office suite products. If the company can leverage AI to maintain its dominance in this space, the company will likely be able to stave off competition and keep growing its 365 subscriber base. AI adoption is also still likely in the early innings, and users may simply not be ready to adopt and integrate some of the tools Copilot offers just yet. If and when this changes, Microsoft will be ready.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.