The software giant is being outdone in innovation by AI start-ups.
Actions of Microsoft (MSFT 2.86%) collapsed last week following the tech giant’s latest earnings report. Investors were likely worried about slowing cloud growth, massive increases in AI infrastructure capital spending, and the revelation that nearly half of its order book was tied to OpenAI.
Image source: Getty Images.
There was potentially another reason why investors turned to Microsoft: AI startup Anthropic. Anthropic’s Claude Code programming tool hit $1 billion in revenue in just six months, and it’s not hard to see why. Looping its powerful AI models to solve problems, with tools enabling web search, file access, and more, proves to be an incredibly efficient way to write code.
In January, Anthropic announced a preview of a new product called Cowork. Microsoft should be very worried.
“Why doesn’t Microsoft do this?”
Anthropic Cowork is essentially Claude Code, but for general IT tasks. It can organize files and folders, create spreadsheets, and even perform tasks in a browser. One example Anthropic gave involved reviewing screenshots of receipts and producing a spreadsheet listing all expenses. Cowork opens the door to powerful and useful automations and workflows on PC.
It’s almost unbelievable that Microsoft, which dominates the PC operating system market with Windows and the productivity software market with Office, doesn’t offer anything like this. Analyst Ben Reitzes, speaking to CNBC, summed up the problem: “It’s a little embarrassing that in 10 days Anthropic was able to invent it, collaborate on it, release it and everyone… could look at it and say, ‘Wow, why isn’t Microsoft doing that?’
While Anthropic innovates, Microsoft tries to sell AI products that no one really wants. The company now has 15 million paid licenses for Microsoft 365 Copilot, which brings AI tools to Office. However, with 450 million paid Microsoft 365 licenses, the adoption rate is downright anemic. About 3% of commercial customers are willing to pay for Microsoft AI.
On the consumer side, Microsoft has been trying to integrate AI features into Windows for a few years, and the results have only annoyed users. The company is now starting to reverse this strategy to some extent.
Today’s change
(-2.86%) $-12.12
Current price
$411.25
Key Data Points
Market capitalization
$3.1 billion
Daily scope
$408.56 -$422.00
52 week range
$344.79 -$555.45
Volume
2.4 million
Average flight
27M
Gross margin
68.59%
Dividend yield
0.80%
A potentially flawed AI strategy
Currently, Microsoft doesn’t offer anything like Anthropic’s Cowork. For professional Windows PC users, many workflows and processes could be at least partially automated by such a tool. Microsoft’s AI tools haven’t convinced most of these customers to pay more for AI.
The success of Claude Code and the promise of Claude Cowork, however, show that individuals and businesses are willing to pay for AI if it is truly useful. Given how quickly the AI industry is evolving, Microsoft needs to rethink its AI strategy and develop AI products that truly solve customer problems. Otherwise, the company risks becoming an AI loser.
