Shares of Microsoft (MSFT 0.73%) crashed last week following the tech giant's latest earnings report. Investors were likely uneasy about a slowdown in cloud growth, a massive increase in AI infrastructure capital expenditures, and the revelation that nearly half of its backlog was tied to OpenAI.
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There was potentially another reason why investors turned on Microsoft: AI start-up Anthropic. Anthropic's Claude Code programming tool reached a $1 billion revenue run rate in just six months, and it's not hard to see why. Putting its powerful AI models in a loop to work through problems, with tooling that enables web search, file access, and more, turns out to be an incredibly effective way to write code.
In January, Anthropic announced a research preview of a new product called Cowork. Microsoft should be very worried.
"Why isn't Microsoft doing that?"
Anthropic Cowork is essentially Claude Code, but for general computer tasks. It can organize files and folders, create spreadsheets, and even complete tasks in a browser. One example Anthropic gave was going through screenshots of receipts and producing a spreadsheet listing all expenses. Cowork opens the door to powerful and useful automations and workflows on the PC.
It's almost incredible 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 is a little embarrassing that in 10 days, Anthropic was able to invent, co-work, put it out and everybody ... could look at it and go, 'Wow, why isn't Microsoft doing that?"
While Anthropic is innovating, Microsoft is trying to sell AI products that no one really wants. The company now has 15 million paid seats for Microsoft 365 Copilot, which brings AI tools to Office. However, with 450 million Microsoft 365 paid seats, the adoption rate is downright anemic. Around 3% of commercial customers have been willing to pay up for Microsoft's AI.
On the consumer side, Microsoft has been trying to stuff AI features into Windows for the past couple of years, and the results have only annoyed users. The company is now starting to pull back on this strategy to a degree.
NASDAQ: MSFT
Key Data Points
A potentially flawed AI strategy
Right now, Microsoft offers nothing in the same ballpark as Anthropic's Cowork. For business users of Windows PCs, there are many workflows and processes that could be at least partially automated by such a tool. Microsoft's own AI tools haven't convinced most of those customers to pay a premium for AI.
The success of Claude Code and the promise of Claude Cowork, though, show that people and businesses are willing to pay for AI if it's genuinely useful. Given how quickly the AI industry is evolving, Microsoft needs to reset its AI strategy and develop AI products that truly solve customer pain points. Otherwise, the company risks becoming an AI loser.
