Microsoft developing in-house AI models to challenge OpenAI: Report

Tech behemoth Microsoft is preparing to launch its own AI models to compete with longtime partner OpenAI, according to The Information.

The company has reportedly begun testing alternative AI models from xAI, Meta, and DeepSeek as potential replacements for OpenAI’s technology in Microsoft 365 Copilot, its flagship AI product.

Microsoft’s AI division, led by Mustafa Suleyman, has trained a new family of models—internally called ‘MAI’—capable of performing nearly on par with popular models from OpenAI and Anthropic on industry benchmarks. The team is also developing reasoning models using chain-of-thought techniques, which enhance problem-solving by generating answers through intermediate reasoning steps.

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The report suggests that the team is already testing the MAI models—significantly larger than Microsoft’s earlier Phi models—by swapping them into Copilot instead of OpenAI’s technology.

Microsoft, which has invested approximately $14 billion in OpenAI, is reportedly considering releasing MAI models later this year as an API (application programming interface), which would help third-party developers to integrate them into their own applications.

A previous Reuters report from December first indicated that Microsoft is working on incorporating both internal and third-party AI models into Copilot to diversify beyond OpenAI’s models and cut costs.