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REDMOND, WASHINGTON – APRIL 4: Former Microsoft CEOs Bill Gates, left, and Steve Ballmer, center, pose for photos with CEO Satya Nadella during an event celebrating the 50th Anniversary of Microsoft on April 4, 2025 in Redmond, Washington. Microsoft also highlighted updates in Copilot, the company’s AI tool. (Photo by Stephen Brashear\/Getty Images)<\/p>\n
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Microsoft stock has fallen 36% from its October 2025 all-time high. And 2026\u2019s first quarter could be the worst since 2008 at the peak of the financial crisis, when the software giant\u2019s shares fell 27%, according to Bloomberg<\/a>.<\/p>\n Microsoft\u2019s share decline reflects the company\u2019s inability to disprove two prevailing narratives: <\/p>\n Hyperscalers are doubling down on capital expenditures without generating faster growth.AI agents from OpenAI and Anthropic may push down Microsoft\u2019s software prices and margins.<\/p>\n Microsoft sees itself as uniquely qualified to earn a return in invested capital by providing software that lowers customers\u2019 total cost of ownership. <\/p>\n \u201cWe have to manage a capital-intensive business, by using all of the levers that software gives us in managing TCO, managing utilization, optimizing the kernels by workload, ensuring that there\u2019s a diverse class of customers,\u201d Microsoft CEO Satya Nadella told Morgan Stanley Research<\/a> U.S. Software Managing Director Keith Weiss. “Those are all the things that I think will generate great ROIC, and this is probably unique,\u201d Nadella added.<\/p>\n While Wall Street sees as much as 57% upside<\/a>, I am skeptical about Microsoft stock. Sadly, I see Nadella now doing some of what his predecessor, Steve Ballmer, did: trying to lock in customers to as many Microsoft services as possible.<\/p>\n ForbesCulture Is The Most Surprising Reason Microsoft Stock Will Keep RisingBy Peter Cohan<\/a><\/p>\n When it comes to AI chatbots, Nadella seems to be trying the same approach while failing to deliver end users a better product for their money than what rivals deliver.<\/p>\n Moreover, I question whether Microsoft will catch up to and ultimately overtake Anthropic\u2019s Claude, which is setting the pace in making AI agents useful for end users.<\/p>\n How Microsoft Lost Its Early AI Lead<\/p>\n Microsoft \u2014 which invested $13 billion into OpenAI<\/a> \u2014 has been spending $30 billion per quarter on CapEx<\/a> to build out its AI infrastructure. <\/p>\n What\u2019s more, analysts saw a big payoff coming from AI chatbots. In 2023 Credit Suisse forecast Copilot would generate $40 billion in new revenue by 2028<\/a>.<\/p>\n The reality falls far short. While Microsoft does not disclose the number, analysts estimate annual 2025 M365 Copilot revenue was between $1.4 billion and $3.2 billion<\/a>. That low number stems from a tiny proportion \u2014 around 2% to 3.3%<\/a> \u2014 of Microsoft 365\u2019s 450 million commercial users paying a $30-per-user, per-month premium to roll out Copilot companywide.<\/p>\n Most companies do not see the return on investment. Simply put, the time saved or value generated by Copilot does not justify doubling their standard software licensing costs<\/a>.<\/p>\n The reason? Microsoft took a shortcut to huge revenue growth by blanketing its entire service line \u2014 from Bing to Windows to Office \u2014 with a generalized chatbot. <\/p>\n Unfortunately, Copilot lacked basic organizational features<\/a> \u2014 such as pinning threads, easily recalling context for long-term projects or performing multistep tasks \u2014 to do complex work.<\/p>\n Here\u2019s an extreme example. An accountant said he goes home and, in his downtime, uses Claude or ChatGPT to rewrite all the things that he has to do in work inside Microsoft\u2019s Copilot system, and then emails it to his work address because his accounting firm prohibits employees from using tools that are outside of Copilot.<\/p>\n Personally, I asked for Copilot to be disabled from my system because it was intrusive and \u2014 unlike Claude \u2014 did not help me do anything useful.<\/p>\n Why Claude Gives Users More For Their Money<\/p>\n Microsoft implicitly agrees with me. By relying on Claude\u2019s models to make Copilot perform high-end tasks \u2014 through the recent introduction of Copilot Cowork<\/a> \u2014 Microsoft is recognizing Anthropic as the superior intelligence provider while putting its investment in OpenAI at risk.<\/p>\n Unlike Microsoft, which sought to win the AI narrative through distribution, Anthropic succeeds on capability and trust. Those strengths have enabled Anthropic\u2019s enterprise market share to grow from 18% to 40% in under two years<\/a> \u2014 enabling the company to land contracts with highly regulated companies like Goldman Sachs and Allianz.<\/p>\n Unlike ChatGPT, Claude does not require constant user hand-holding \u2014 it can do hours of autonomous work without breaking. Because of its more than 200,000-token context window, it can ingest a 600-page document, and it cuts the average time to completed 1.4-hour tasks by an average of 80%.<\/a><\/p>\n Claude earns enterprise trust through several features \u2014 most notably its strict zero-retention policy<\/a>. This means enterprise data never trains models and is wiped after each session. <\/p>\n For industries that cannot risk leakage of intellectual property \u2014 such as health care, finance and managed service providers \u2014 Claude\u2019s data policy opens up valuable market opportunities.<\/p>\n Of course, offering more capabilities for users is half the value equation \u2014 the other is the AI chatbot\u2019s return on investment, as measured by how long it takes cost savings from the tool to earn back its TCO.<\/p>\n By that measure, Claude prevails over Copilot. To be sure, Microsoft\u2019s sticker price is half Claude\u2019s typical $60 per user per month<\/a>; however, Copilot only works with premium Microsoft 365 E3 or E5 licenses, which go for an additional $36 to $57 per user per month. <\/p>\n What\u2019s more, Microsoft charges the same amount regardless of how much each employee uses Copilot. If a company buys 1,000 Copilot licenses ($360,000\/year) but only 5% of employees actually use it daily \u2013 a common adoption hurdle in early pilot programs<\/a> \u2013 the effective cost for Copilot\u2019s actual users increases to $600 per active user per month.<\/p>\n Claude also saves enough money to pay back its customers\u2019 investment by reducing coding costs. For example, Claude Opus models achieve a 72.5% success rate<\/a>, and they boost team coding productivity by 55%. <\/p>\n If a Claude enterprise customer pays $1,000 per month for application programming interfaces, the 55% productivity increase on an engineer costing $150,000 per year more than offsets the monthly API fee. <\/p>\n By contrast, Copilot cuts time for simple tasks but is less successful than Claude at time-consuming autonomous ones. Microsoft cites time reductions of 30% to 90% for generating an Excel chart or a Word doc. <\/p>\n However, Copilot\u2019s success rate on autonomous coding benchmarks is between 45% and 55%. Moreover, Copilot generally cannot hold context for longer than 30 to 60 minutes and generally requires frequent human prompting and correction<\/a>.<\/p>\n To be fair, Microsoft is trying to move forward with agentic AI; however, the momentum favors Claude. <\/p>\n Between mid-2025 and January 2026, Copilot subscribers who use the product as their primary AI option fell from 18.8% to 11.5%<\/a>. What\u2019s more, a 2026 survey concluded that at 46%, Claude Code is the most-loved AI developer tool<\/a> \u2014 far more than GitHub Copilot\u2019s 9%.<\/p>\n What Analysts Are Saying<\/p>\n Despite Microsoft\u2019s competitive challenges in delivering a tangible return on investment to enterprise AI chatbot customers, Wall Street remains very bullish on the stock. More specifically, 67 analysts set an average price target of $592 for Microsoft \u2014 suggesting 66% upside, according to Bloomberg, which is the highest \u201cimplied return on record” going back to 2009. <\/p>\n Not every Wall Street analyst shares this general bullish sentiment.<\/p>\n One bearish analyst needs convincing that AI chatbots won\u2019t eat Microsoft\u2019s software lunch. \u201cThere is this concern that rather than paying Microsoft, we\u2019ll see more customers go directly to AI vendors, which could disrupt the core business, or at least pressure pricing and margins,\u201d Janus Henderson Investors portfolio manager Jonathan Cofsky told Bloomberg.<\/p>\n He also questions whether the company\u2019s CapEx will pay off. \u201cMicrosoft has become a lot more capital intensive,\u201d Cofsky added. \u201cFor the shares to perform better going forward, we need to become more comfortable that software growth won\u2019t materially decelerate.\u201d<\/p>\n Microsoft\u2019s CapEx growth is indeed significant. Between fiscal 2025 and fiscal 2028, the company\u2019s capital expenditures are anticipated to rise at a 29.5% average annual rate from $88 billion to $191 billion, noted Bloomberg, <\/p>\n To be fair, another analyst is a long-term bull. \u201cI think the stock has a lot of long-term value,\u201d Allspring Global Investments portfolio manager Jake Seltz told Bloomberg.<\/p>\n \u201cIts AI strategy will ultimately be vindicated, and I think it is largely insulated from the biggest AI disruption fears. In the meantime, those concerns are creating an opportunity, especially if you\u2019re willing to have some patience,\u201d he added.<\/p>\n