<p><strong>Microsoft </strong><span class="ticker-mention inline-flex items-center font-bold">(MSFT <span class="ml-1 text-green-900">+1.01%</span>)</span> was an early winner in the AI boom. Its partnership with OpenAI put it in the pole position after ChatGPT launched in late 2022.</p>
<p>However, more than three years later, Microsoft is looking like a laggard in AI. Copilot, its AI assistant, has received broad criticism for its high price tag, relatively poor performance, and low adoption rate, evidence that Microsoft squandered the advantage it had with its partnership with OpenAI.</p>
<p>This year, Microsoft stock has tumbled on fears that its enterprise software empire could be disrupted by AI-native products, using new tools like Anthropic's Claude Code. </p>
<p>Year-to-date, the stock is down 23%, and it's off by more than a third from its peak. With a market cap below $3 trillion, Microsoft's share price has not been this low since 2023, with the exception of a brief drop following the Liberation Day tariffs announcement a year ago. </p><div class="my-8 lg:hidden"><div id="foolcom_sidebar_top_container" class="pitch-container"></div></div>
<p>Microsoft's slide has come even as the business has continued to deliver strong results. In its most recent quarter, revenue rose 17% to $81.3 billion, and adjusted earnings per share were up 24%. Revenue from Azure, its cloud infrastructure service, jumped 39%.</p><div class="mb-8 flex justify-center"></div>
<p>In other words, Microsoft's business remains strong, but investor perception of the company's prospects has dramatically declined.</p><div><div id="in_line_article_pitch_container" class="pitch-container"></div></div>
<p>Microsoft may now have an answer for that.</p>
<div class="image"><img alt="An AI lightbulb on a circuit board." width="880" height="503" class="h-auto max-w-full rounded object-contain" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NjM5NzIvYWktbGlnaHRidWxiLmpwZyZ3PTM4NDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NjM5NzIvYWktbGlnaHRidWxiLmpwZyZ3PTM4NDA"/>
<p>Image source: Getty Images.</p>
</div>
<h2>Can Microsoft catch up in AI?</h2>
<p>After mixed results in its partnership with OpenAI and the Copilot flop, Microsoft is now preparing to develop its own frontier models, bringing it into competition with leaders like OpenAI, Anthropic, and <strong>Alphabet </strong>(NASDAQ: GOOG) (NASDAQ: GOOGL), according to a Bloomberg interview with Microsoft's AI chief, Mustafa Suleyman. </p>
<p>Microsoft plans to create state-of-the-art AI models by 2027,  to generate text, audio, and images.</p>
<p>If Microsoft is able to find success with those models, it could solve virtually all of the stock's problems, including the weakness with Copilot and its vulnerability to AI disruption. A better AI assistant or chatbot would almost make products like Microsoft 365 stickier and allow the company to charge more for those products.</p>
<p>As an example, Alphabet's surge last year came in large part due to the recognition for Gemini, its new AI model, which some consider to be better than ChatGPT.</p>
<p>For Microsoft, just recovering to its previous peak would represent a gain of roughly 50%.</p>
<section><div class="flex flex-wrap place-content-between"><div class="flex w-full place-items-center lg:w-3/4"><div class="p-[8px] text-center" style="width: 95px"><small><div class="flex flex-col items-center gap-2">Expand</div></small></div><div class="py-4 pr-4"><img alt="Microsoft Stock Quote" width="64" height="64" class="w-full flex-none object-contain" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL01TRlQucG5nJnc9MTI4?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL01TRlQucG5nJnc9MTI4"/></div><div class="pr-[16px]"><h2>NASDAQ: MSFT</h2><div class="text-md leading-[1] font-medium text-gray-800">Microsoft</div></div></div><div class="flex w-full place-items-center lg:w-1/4"><div class="h-full w-5/6 px-4 py-2.5 lg:text-right bg-green-200"><div class="mb-[2px] text-[10px] text-gray-800">Today's Change</div><div class="mb-6 text-[18px] leading-none font-medium text-green-900">(1.01%) $3.73</div><div class="mb-[2px] text-[10px] text-gray-800">Current Price</div><div class="text-gray-1100 text-[18px] leading-none font-medium">$373.10</div></div><div class="flex h-full w-1/6 items-center justify-center py-2.5 bg-green-900"></div></div></div><div class="flex flex-wrap overflow-hidden transition-all duration-300 h-0"><div class="w-full border-t border-gray-300 p-2 lg:w-3/4 lg:border-r lg:p-6"></div><div class="w-full p-2 lg:w-1/4 lg:p-4"><h3>Key Data Points</h3><div class="text-gray-1100 my-[14px] grid grid-cols-2 text-sm"><div class="border-b border-gray-300 py-[14px] text-gray-800">Market Cap</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">$2.8T</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Day's Range</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">$364.15 - $373.25</div><div class="border-b border-gray-300 py-[14px] text-gray-800">52wk Range</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">$344.79 - $555.45</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Volume</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">1.1M</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Avg Vol</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">36M</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Gross Margin</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">68.59%</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Dividend Yield</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">0.93%</div></div></div></div></section>
<h2>Will Microsoft get there?</h2>
<p>Whether Microsoft will challenge companies like OpenAI and Anthropic depends on its execution, but the tech giant should have the expertise and the funds to get there. </p>
<p>We'll learn more as Microsoft makes progress toward that goal, but shares of the Windows-maker could prove to be a bargain if it can execute on that goal.</p><div id="article_pitch_container" class="pitch-container"></div><div id="promobox_container" class="pitch-container"></div>

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<p>Microsoft's stock has fallen 23% this year, despite strong financial results, due to concerns over its AI capabilities and competition. The company plans to develop its own AI models by 2027 to compete with leaders like OpenAI and Anthropic. Success in this area could significantly boost its stock price, potentially recovering to previous peaks with a 50% gain. Investors are watching closely as Microsoft aims to enhance its AI offerings and improve market perception.</p>

- Microsoft was initially a leader in AI following its partnership with OpenAI, but now faces criticism over its AI assistant, Copilot, which has seen low adoption and poor performance.  
- Despite a 23% decline in stock this year, Microsoft continues to report strong revenue growth, indicating fundamental business strength amidst investor concerns about its future in AI.  
- Microsoft plans to develop its own AI models by 2027 to compete with industry leaders, which could improve its market position if successful.

If Microsoft Get This One Thing Right, the Stock Could Explode