Microsoft Corporation (MSFT.US) Is Co-pilot falling behind competitors? Faurore: Product capabilities significantly improved, commercial progress may exceed expectations.

Against the backdrop of ChatGPT by OpenAI, Claude by Anthropic, Grok under SpaceX (SPCX.US), Gemini by Alphabet Inc. Class C (GOOGL.US), and the latest Siri AI launched by Apple Inc. (AAPL.US) competing for users, Microsoft Corporation's (MSFT.US) Copilot was once questioned by the market for falling behind in the generative artificial intelligence competition. However, a recent research report released by BNP Paribas suggests that this view may be outdated. After holding discussions with Microsoft Corporation's management, BNP Paribas analyst Stefan Slowinski stated that Copilot's capabilities have significantly improved compared to 6 to 12 months ago, and recent large customer contracts further validate this point. In the report, Slowinski wrote, "Copilot's capabilities now far exceed those of 6 to 12 months ago." He specifically mentioned a significant collaboration project with the UK National Health Service that Microsoft Corporation recently secured, demonstrating that Copilot is gaining recognition from more and more large institutional clients. Commercial progress of Copilot may exceed market expectations BNP Paribas believes that with continued product improvements, increasing customer usage rates, and a maturing sales system, Microsoft Corporation's Copilot may make commercial progress faster than market expectations. Currently, the market generally anticipates that by the end of Microsoft Corporation's fiscal fourth quarter in 2026, Copilot's paid user count will reach around 25 million. However, BNP Paribas believes that this number still has room for further increase. Slowinski stated, "Taking into account the continuous growth in customer usage, improvements in core product experience, and the maturation of the sales system, we believe that Microsoft Corporation's fourth quarter Copilot paid user count is likely to significantly exceed current market expectations." Copilot is now widely integrated into Microsoft 365, Windows, GitHub, Azure, and other product systems, becoming an important entry point for Microsoft Corporation's AI strategy. Microsoft Corporation may adjust Copilot's pricing model In addition to user growth, investors are also concerned about how Copilot will achieve greater monetization in the future. BNP Paribas disclosed that Microsoft Corporation is exploring adjusting Copilot's business model from traditional user-based pricing to a model that combines "user count + actual usage." Although Microsoft Corporation has not announced specific price adjustment plans, the management has mentioned GitHub Copilot's development experience on multiple occasions. Initially, GitHub Copilot primarily charged based on user count; as the demand for AI code generation rapidly increased, the company began exploring a model that combines charging based on actual usage, more accurately reflecting the costs and value brought by high computational tasks. BNP Paribas believes that as more enterprise clients apply Copilot to complex workflows, similar pricing models may expand to more product lines in the future. This means that Microsoft Corporation's future AI business revenue growth may not only depend on the addition of new users but may also benefit from deepening user engagement. Azure faces computational cost pressures In terms of artificial intelligence infrastructure, the market has recently been concerned that the continuous increase in GPU rental prices could raise the costs of cloud computing business. BNP Paribas believes that Microsoft Corporation still has strong cost control capabilities. Although GPU resources are in short supply, Microsoft Corporation is not rushing to raise prices for Azure cloud services across the board. Slowinski pointed out that the management of Microsoft Corporation mentioned in communications that the company is cautious about widespread price hikes, mainly considering customer relationships, market competition, and long-term strategic factors. "Microsoft Corporation is concerned that if prices are raised hastily, Amazon.com, Inc. AWS and Alphabet Inc. Class C's cloud platform (GCP) may introduce more attractive solutions to compete for customers." Therefore, the company prefers to alleviate cost pressure by optimizing infrastructure utilization and improving operational efficiency, rather than simply passing on costs to customers. AI is at a once-in-a-decade pivotal development stage Regarding the common investor concern about capital expenditures, Microsoft Corporation's management has signaled a continued large-scale investment in AI infrastructure. BNP Paribas stated that Microsoft Corporation has not set a clear threshold for free cash flow (FCF) to limit the scale of AI investments. In other words, as long as market opportunities in AI continue to exist, the company will continue to expand related investments. The management of Microsoft Corporation views the current AI wave as a once-in-a-decade industrial opportunity, indicating that the company is willing to continue long-term investments in data centers, computational facilities, and AI model training. With the continuous enhancement of Copilot's product capabilities, increasing adoption rates among enterprise clients, and further integration of Azure cloud platform with the OpenAI ecosystem, Microsoft Corporation's competitive advantage in the enterprise-level AI market remains solid.