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One of the big disappointments in the stock market lately has been Microsoft (MSFT), which recently closed out its worst quarter since 2008. The stock is down over 17% in the past six months, a significant move for one of the world’s largest companies.
Part of the sell-off can be attributed to a 2026 software rout, with investors concerned that artificial intelligence (AI) will be able to replicate similar products and solutions, potentially eroding margins and pricing power.
Despite the negative sentiment, Microsoft could be a major beneficiary of AI. However, the company’s generative AI assistant, Copilot, has so far disappointed investors. Reports have circulated that Microsoft CEO Satya Nadella has launched an overhaul of Copilot dubbed “Code Red.”
Copilot is positioned as a broad AI tool: it is an AI conversational chatbot, can automate workflows, create content, integrate into Microsoft 365 applications such as Word, Excel, PowerPoint, and Teams, and support coding and the development of AI applications.
Even with these capabilities, Copilot has struggled to gain the traction investors want, particularly given its role as a competitor to ChatGPT and Anthropic’s Claude. On Microsoft’s most recent earnings call, Nadella said the company has “15 million paid Microsoft Corporation 365 Copilot seats and multiples more enterprise chat users.”
The company also reported 4.7 million paid GitHub Copilot Pro Plus subscribers, up 75% year over year. GitHub Copilot is Microsoft’s AI-powered coding assistant. Still, investors appear disappointed given that Microsoft 365 has 450 million paying subscribers, raising questions about how effectively Copilot is being cross-sold.
Slowinski also said the software sell-off has not spared Microsoft. Investors have been frustrated by Copilot, concerned that Microsoft could end up in a contest with OpenAI and Anthropic. They are also looking for Microsoft to strike the right balance between capital expenditures, free-cash-flow growth, and AI monetization.
Copilot remains a pain point for the stock, and investors may need to see evidence of further traction before they become more confident in its ability to succeed in a competitive landscape. On the consumer side, Copilot does not appear to have the same recognition as ChatGPT and Claude.
At the same time, Microsoft continues to operate many software businesses and is positioned to benefit from AI, whether through Copilot or its Azure cloud services business, which helps clients build and run AI applications.
While AI is viewed as a significant threat to the software moat, Microsoft 365 is described as one of the stickiest enterprise suites of tools. The article concludes that long-term investors can consider buying Microsoft stock, citing the company’s resources and AI capabilities to help bolster and maintain its moat.
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