Microsoft is moving to internally built AI models to cut third-party licensing and API costs, a shift its AI chief frames as a path to lower costs and better margins. The stock rose about 1.4% premarket, even as ING warned of slower earnings-per-share growth ahead. Xbox is dragging, with gaming revenue set to fall roughly 7% this fiscal year.
Microsoft is pulling its AI stack in-house, swapping third-party model licensing and API costs for models it builds itself. AI head Mustafa Suleyman frames the shift as targeting lower costs and improved margins for the company.
Investors reward the pivot, but ING sees a catch
The market took the news well. Microsoft shares rose about 1.4% in premarket trading as investors reassessed how the company spends on AI.
Yet the optimism carries a warning. ING cautioned that investors should expect slower earnings-per-share growth, compressed valuation multiples, elevated infrastructure spending and depreciation charges, fewer share buybacks, and weaker free cash flow. The push for better margins, in other words, sits alongside a longer list of pressures on those same figures.
How Microsoft plans to spend less
The cost cutting runs through orchestration. Microsoft routes tasks across multiple models to trim expense, pairing that with Copilot, Azure hosting for advanced models, and its Foundry AI platform to keep deployments flexible and cheaper to run.
Xbox drags on the gaming unit
Gaming tells a harder story. Xbox revenue is projected to decline roughly 7% for the fiscal year, with hardware sales dropping 33% in fiscal Q3 and weighing on the segment’s profitability.
Beyond the numbers, Microsoft is also seeding demand for AI skills. The company partnered with Alef Education on a UAE literacy program that trained about 25,000 educators across 710 schools between May 11 and June 30, 2026.
Source: TradingView
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