Over the past couple of years, artificial intelligence (AI) investing has focused mostly on companies supplying chips, servers, and cloud infrastructure. However, the next phase of the AI cycle can reward companies that successfully monetize AI use, especially through recurring software revenue.
Microsoft (MSFT 0.59%) appears well positioned to benefit from this transition. In addition to building AI-optimized Azure cloud infrastructure, the company is offering services to build AI agents. Microsoft has also integrated AI-powered assistants and other AI tools across its core software offerings. Hence, the company is now monetizing AI through paid subscriptions and enterprise software products.
Here's why that opportunity can become even larger in 2026.
Image source: Getty Images.
Copilot is quickly becoming a source of recurring revenue
Microsoft's AI assistant, Copilot, is already seeing strong traction. In the second quarter of fiscal 2026 (ending Dec. 31), paid Microsoft 365 Copilot seats increased by more than 160% year over year to reach roughly 15 million. Enterprise (business) deployments are accelerating, with the number of organizations that are deploying more than 35,000 Microsoft 365 Copilot seats tripling year over year in the second quarter. Microsoft reported a tenfold year-over-year increase in daily active users of Microsoft 365 Copilot, while the average number of conversations per user doubled.
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Key Data Points
These adoption trends are reflected in the company's financial performance. In the second quarter, Microsoft 365 Commercial Cloud revenue was up 17% year over year, supported partly by the higher average revenue per user from Copilot and premium subscriptions.
Microsoft is expanding its AI monetization avenues with the launch of a new Microsoft 365 E7 subscription tier effective May 1, 2026. Priced at about $99 per user per month, roughly 65% higher than its current top-tier enterprise plan, E7 subscriptions give access to Copilot AI along with security, identity, and AI governance tools.
Besides productivity software, Microsoft is leveraging Copilot capabilities across several areas, including coding, security, and healthcare. GitHub Copilot, an AI-powered coding assistant, exited the second quarter with 4.7 million paid subscribers, up 75% year over year. Copilot Pro Plus subscriptions for individual developers increased 77% sequentially in the second quarter.
Distribution advantage
Microsoft's broad presence in enterprise software gives it a significant distribution advantage in monetizing AI capabilities. The company is increasingly introducing AI features as paid add-ons across existing products.
Microsoft's broader AI platform is also gaining traction. The company's unified data and analytics platform, Fabric, surpassed a $2 billion annual revenue run rate. Fabric had over 31,000 customers and reported a 60% year-over-year revenue jump in the second quarter.
Foundry, a service that enables clients to build and deploy AI agents, saw the number of customers spending more than $1 million quarterly increase by nearly 80% year over year in the second quarter. Additionally, over 80% of Fortune 500 companies already have active AI agents built using Copilot Studio and Agent Builder.
Microsoft recently introduced Agent 365, a platform designed to manage and secure AI agents across cloud environments. By extending the client's identity, governance, and security management to agents, Microsoft is further driving up adoption and monetization of its AI services.
Considering these factors, Microsoft seems well positioned to benefit dramatically from AI software monetization in 2026.
