Microsoft Shows Off In-House Tech. Is the Stock a Buy?

Microsoft (NASDAQ: MSFT) was one of the first big tech companies to go all in on artificial intelligence (AI). However, this was done through a large early investment in OpenAI and a partnership with the large language model (LLM) maker. It used access to OpenAI's models to draw customers to its Azure cloud computing offering and to power its AI assistant co-pilots.

While this helped drive growth, it left Microsoft relying on another company's AI technology and not its own. As OpenAI grew bigger, it needed to move beyond Microsoft, and the two companies' relationship has changed. Microsoft still owns about 27% of OpenAI and has privileged access to its models and an exclusive license to its intellectual property (IP) through 2032, but OpenAI is now working with other cloud providers, including Amazon and Alphabet.

Image source: The Motley Fool.

Looking to reduce its dependence on OpenAI, Microsoft unveiled seven new in-house AI models at its Build developer conference. It said its flagship MAI-Thinking-1 model was made from scratch with no distillation from other AI models. Distillation is when an AI model is trained to act and reason like an already established, more complex model.

Using McKinsey benchmarks, Microsoft said it was able to outperform OpenAI's GPT 5-5 while delivering 10 times better cost efficiency. Outside its foundational model, it also introduced models aimed at coding, image, voice, and transcription, among other areas.

With its own models, Microsoft should be able to reduce costs by lowering the amount it pays third-party AI model companies like OpenAI. This, in turn, should help improve margins and boost profits.

In addition to introducing its new AI models, the company made it known that it's not forgetting about the race in quantum computing. At the event, it introduced its new topological quantum chip, Majorana 2. It said the new chip was developed with the help of agentic AI and claimed that the chip's qubits are 1,000 times more stable than those of its earlier generations. It is looking to have a scalable quantum computer by 2029.

Is the stock a buy?

Microsoft's stock has lagged over the past year. Investors have fretted over the software-as-a-service (SaaS) model and its aggressive spending on AI infrastructure, while lacking its own top-tier AI models or chips. The company is playing catch-up with both AI chips and models, but this is a nice first step.

Overall, the company remains well-positioned given how ingrained it is in the enterprise space. More seriously entering the AI race is also a big positive. With the stock beaten down despite strong continued growth, I'd be a buyer of its shares as it moves from being an AI user to an AI creator.

Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.