Microsoft Corp. (MSFT) is pushing Copilot beyond a workplace chatbot and into a broader AI platform as it looks to drive new revenue across Microsoft 365 and Azure.

The strategy comes as Microsoft ramps up spending on data centers and computing capacity to meet surging AI demand. At the same time, higher Treasury yields are putting pressure on richly valued technology stocks.

Cramer Sees Microsoft Among AI Leaders

CNBC's Jim Cramer said Monday that Microsoft is among a small group of AI leaders strong enough to help offset pressure from rising interest rates.

“Here, I think there’s tremendous distortion caused by some very big winners, namely NVIDIA Corp. (NVDA), Microsoft and Meta Platforms Inc. (META),” Cramer said.

He pointed to improving sentiment around Copilot as a key catalyst for Microsoft. NVIDIA continues to benefit from strong AI chip demand, while Meta is gaining momentum around its Muse personal AI agent.

Microsoft accounted for roughly 5.8% of the S&P 500 as of Friday’s close. That gives moves in the software giant an outsized influence on the broader index.

Microsoft Pushes Copilot Beyond Chat

Microsoft recently redesigned Copilot around Home, Code and Autopilot as it seeks to make the product a central interface for workplace AI.

Executive Vice President Jared Spataro said Microsoft wants Copilot to play a role in the AI era similar to Office during the PC era.

Home combines Chat and Cowork. Code allows users to create apps, dashboards and workflows using natural-language prompts. Autopilot can handle recurring and longer-running tasks within defined permissions and governance controls.

The shift could also broaden Microsoft’s monetization opportunities. The company plans to use subscriptions for everyday Copilot access while charging customers based on consumption for more compute-intensive workloads.

Microsoft also reportedly plans discounts of about 30% for customers buying more than 1,000 seats and as much as 50% for purchases above 10,000 seats.

Oppenheimer Sees Azure, Microsoft 365 Upside

Oppenheimer analyst Brian Schwartz said Microsoft’s latest Copilot strategy transforms the product from a chatbot into what he views as an AI operating system.

Schwartz said the shift could boost engagement, retention and monetization across Azure and Microsoft 365. He raised his Microsoft price forecast to $570 from $515 and named the stock a top pick.

The analyst also highlighted Microsoft’s multi-model strategy, which gives customers access to technology from OpenAI, Anthropic and Muse.

Azure is growing in the low-40% range, while Microsoft has guided for growth to accelerate into the mid-40% range this quarter. Schwartz believes growth approaching 50% at a business already exceeding $100 billion in scale could support a higher valuation.

AI Demand Tests Microsoft’s Computing Capacity

Microsoft is also racing to expand its data center footprint as AI workloads strain available computing capacity.

Bloomberg reported that Microsoft aims to increase data center capacity to more than 38 gigawatts by 2032 from about 12 gigawatts currently. However, a company spokesperson disputed those projections.

The shortage of available computing power has already forced Microsoft to limit some new cloud subscriptions and has pushed certain customers toward rivals, according to the report.

Microsoft spent $145 billion on capital expenditures in its latest fiscal year as it poured money into data centers, chips and other AI infrastructure.

That spending reflects a wider industry arms race. Goldman Sachs expects AI capital expenditures by major hyperscalers, including Microsoft, to rise more than 50% to $1.2 trillion in 2027.

For Microsoft, the challenge is turning that enormous infrastructure investment into sustained growth across Azure, Microsoft 365 and Copilot while demand for AI computing continues to outstrip available capacity.

MSFT Price Action: Microsoft shares were up 0.46% at $527.62 during Tuesday premarket trading, according to market data.