Microsoft might challenge “partner” OpenAI with in-house AI models

Microsoft is one of the early backers of OpenAI, and has repeatedly hawked products like Copilot by touting their access to the latest ChatGPT models. Now, it seems Microsoft is looking to push its own AI models in the popular software suite, while also developing a rival to OpenAI’s reasoning models in the ”GPT-o” family.

As per The Information, employees at Microsoft’s AI unit recently concluded the training of “a new family of AI model” that are currently in development under the “MAI” codename. Internally, the team is hopeful that these in-house models perform nearly as well as the top AI models from the likes of OpenAI and Anthropic.

Under the leadership of its AI chief, Mustafa Suleyman, Microsoft is launching this initiative to trim down its dependence on OpenAI and develop its own AI stack for Copilot applications. The developments are not surprising.

Steadily building its own stack

In the last week of February, Microsoft introduced new small language models called Phi-4-multimodal and Phi-4-mini. They come with multi-modal capabilities, which means they can process text, speech, and vision as input formats, just like OpenAI’s ChatGPT and Google’s Gemini.

“It is among a few open models to successfully implement speech summarization and achieve performance levels comparable to GPT-4o model,” Microsoft noted in its blog post. The company is hoping to release its ”MAI” models commercially via its Azure service.

Rivalry, and openness to rivals

Aside from testing in-house AI models for Copilot, Microsoft is also exploring third-party options such as DeepSeek, xAI, and Meta. DeepSeek recently made waves by offering a high performance benchmark at a dramatically lower development cost. It has already been adopted by numerous companies and recently claimed a theoretical cost-to-profit ratio of over 500% on a daily basis.

Today, we are advancing our AI ambitions with the release of DeepSeek R1 7B & 14B distilled models for Copilot+ PCs via Azure AI Foundry. This is the next step on our journey to continue to make Windows the platform for AI, seamlessly integrating intelligence from the cloud to… pic.twitter.com/QaUYrlMIt6

— Pavan Davuluri (@pavandavuluri) March 3, 2025

Aside from developing its own AI models to replace OpenAI’s GPT infrastructure for Copilot, Microsoft is also reportedly working on its own reasoning AI models, too. This would pit Microsoft against OpenAI products such as GPT-o1 as well as Chinese upstarts such as DeepSeek, both of which offer reasoning capabilities.

Apparently, the work on an in-house reasoning model has been expedited due to strained relationships between Microsoft and OpenAI teams over technology sharing. According to The Information, Suleyman and OpenAI have been at odds over the latter’s lack of transparency regarding the intricate workings of its AI models such as GPT-o1.

Reasoning models are deemed to be the next frontier for AI development, as they offer a more nuanced understanding of queries, logical deduction, and better problem solving capabilities. Microsoft also claims that its Phi-4 model delivers stronger language, mathematical, and visual science reasoning chops.