Microsoft has launched a broad overhaul of Copilot after closing out its worst quarter since 2008, as Satya Nadella moves to restore momentum around the company’s AI push. BNP Paribas analyst Stefan Slowinski said Nadella is leading what he called “Microsoft's Copilot code red,” a sign that the software giant is trying to sharpen a product that has not met investor expectations.
The stock has fallen more than 17% in the past six months, and the pressure is now showing up in the product roadmap. The overhaul is meant to improve performance and the user experience, and it will include Microsoft 365 E7 with a fully integrated AI stack so AI can be used across the business. Other products set to follow include Agent Mode, Copilot Cowork, Critique, Council and Agent 365.
Nadella told analysts on Microsoft’s most recent earnings call that the company has 15 million paid Microsoft 365 Copilot seats and “multiples more enterprise chat users.” Microsoft also said it had 4.7 million paid GitHub Copilot Pro Plus subscribers, up 75% year over year. Those figures matter because Microsoft 365 has 450 million paying subscribers, giving the company a huge base from which to sell AI tools that can be used in Word, Excel, PowerPoint and Teams, as well as for coding and helping developers build AI applications.
The backdrop is a familiar one for Microsoft: investors have been looking for proof that heavy spending on artificial intelligence can still translate into pricing power and free-cash-flow growth. Copilot has been seen by some investors as disappointing relative to expectations, while others fear AI will quickly imitate similar products and compress margins. Slowinski said the mix of continued attractive free-cash-flow margins of about 20%, versus 0% for hyperscaler peers, along with renewed confidence in Copilot and Azure beats, could help the stock recover.
That leaves Microsoft with a straightforward but difficult task. It has to show that Copilot is more than a feature add-on and turn the product into a reason customers keep paying, even as rivals flood the market with similar tools. For now, Nadella is betting that a rebuilt Copilot can become the clearest proof that Microsoft can still lead in AI and earn back the market’s confidence.
