Microsoft faces AI monetization doubts as Copilot overhaul raises concerns
Melius Research has lowered its price target on Microsoft to 400 dollars from 430, maintaining a neutral rating and signaling growing skepticism about the company’s ability to convert its heavy artificial intelligence investments into sustained revenue.
Analyst Ben Reitzes described Microsoft’s recent restructuring of its Copilot division as a warning sign, suggesting that the company still faces unresolved challenges in turning its AI strategy into a scalable business model. The downgrade follows an earlier shift in February, when Melius moved its recommendation from buy to neutral, citing concerns over weak adoption and messaging around AI products.
The immediate trigger for the revised outlook was Microsoft’s March 17 decision to reorganize its Copilot operations. The company merged its consumer and enterprise Copilot teams under Jacob Andreou, a former Snap executive, while reassigning Mustafa Suleyman, previously head of Microsoft AI, to focus on advanced model development within a dedicated superintelligence group.
In an internal communication, Suleyman said the change would allow him to concentrate fully on building next generation AI systems over the next five years. Chief executive Satya Nadella framed the restructuring as a move toward a more unified and efficient platform for customers.
However, analysts interpret the shift as evidence that Microsoft’s Copilot ecosystem has struggled to evolve into a cohesive offering. The decision to prioritize internal model development suggests the company may see greater competitive advantage in controlling foundational AI capabilities rather than relying solely on product integration and user experience.
Recent data has reinforced investor concerns. Microsoft disclosed in January that Microsoft 365 Copilot had reached 15 million paid seats, representing only 3.3 percent of its 450 million Microsoft 365 users. Some analysts viewed the figure as underwhelming given the scale of Microsoft’s distribution network and marketing efforts.
At the same time, the company has significantly increased spending on AI infrastructure and development. Microsoft reported 49 billion dollars in AI related capital expenditures in the first half of fiscal 2026 and is projected to approach 100 billion dollars for the full year.
Market reactions remain divided. Goldman Sachs has maintained a buy rating with a 600 dollar price target, arguing that prioritizing long term AI capabilities over short term cloud revenue could deliver stronger returns over time. Still, Microsoft shares have declined more than 25 percent from their peak last autumn, bringing valuation metrics to their lowest levels since 2022.
The broader question facing investors is whether Microsoft can close the gap between its aggressive AI spending and slower than expected user adoption. As competition intensifies across the AI sector, the company’s ability to align product development, infrastructure, and monetization will be critical to sustaining confidence in its long term strategy.
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