Earlier this year, Microsoft CEO Satya Nadella moved with haste to get engineers to test and deploy DeepSeek’s R1 model on Azure AI Foundry. It was an unusually quick turnaround for a new model on Azure that also set a new bar for success.
A few months later, Nadella then pushed to onboard xAI’s Grok 3 models, in a deal that saw them arrive on Azure AI Foundry just in time for the first day of Microsoft’s Build developer conference in May. Elon Musk even appeared during Nadella’s Build keynote, in a somewhat jovial conversation about his early days as a Microsoft intern — despite Musk making Microsoft a defendant in his lawsuit against OpenAI.
I’m now hearing from sources familiar with Microsoft’s AI plans that the company is taking a far more careful approach with onboarding xAI’s latest Grok 4 model, after quickly onboarding models from competitors like OpenAI, Meta, and Mistral.
Musk introduced Grok 4 early last month, just days after the Grok chatbot spewed out a series of pro-Hitler views on X. I’m told that Grok’s Nazi sympathizing set off alarm bells inside Microsoft, just as the company was preparing to launch Grok 4 on Azure AI Foundry. Instead of simultaneously shipping Grok 4 on Azure, like Microsoft does with most of OpenAI’s new models, there has been no public announcement of when xAI’s new model will be available through Microsoft’s AI services.
I understand Microsoft has been red teaming Grok 4 throughout July, a process where teams attack AI systems to find vulnerabilities or safety issues. One source described some of the early red team reports for Grok 4 as “very ugly.”
Instead of launching Grok 4 to all Azure AI Foundry customers, Microsoft is now working on a private preview of the model — just as Grok hits the headlines again for generating Taylor Swift nudes. This preview will only be available for a handful of customers, I’m told, as Microsoft wants to ensure Grok 4 is enterprise ready.
I asked Microsoft to comment on its Grok 4 plans for Azure AI Foundry, but the company refused to provide a statement that’s attributable to a named spokesperson.
Grok 4 availability on Azure AI Foundry is important to xAI, as it gives Elon Musk’s AI company direct access to Microsoft’s enterprise customers. It’s equally important to Microsoft, as the company is keen to position itself as the AI model hosting company. Microsoft’s circumspect approach with the Grok 4 preview means it’s unlikely that we’ll see xAI’s latest model appear more broadly on Azure AI Foundry anytime soon.
Agent 365 is now an official Microsoft product
Microsoft announced another AI shake-up this week, affecting Charles Lamanna’s Business & Industry Copilot (BIC) teams. In June, the BIC team moved closer to the Microsoft 365 Copilot side of the company, with Lamanna reporting up to Rajesh Jha, Microsoft’s head of experiences and devices.
In an internal memo yesterday, Lamanna announced some BIC leadership changes that will see Microsoft make Agent 365 an “official product initiative.” Agent 365 sounds like a way for Microsoft to focus on the challenges of AI agent security and compliance while it scales these agents across Teams, Outlook, and SharePoint. The Agent 365 initiative will be led by Nirav Shah, a 24-year veteran at Microsoft.
Microsoft is also combining parts of its Power Automate and Copilot Studio teams together. “Agent flows and CUA from Power Automate will move to Copilot Studio under Dan Lewis,” says Lamanna in his memo. Some other Power Automate employees will now be part of Microsoft’s Power Platform team.
Finally, the BIC team is also creating “Microsoft Forward Deployed Engineers (FDEs).” These are technical experts who work directly with Microsoft’s customers to get them to activate AI products. The FDE announcement comes amid Microsoft’s layoffs that have targeted sales teams as part of a broader restructuring effort to bring in more technical salespeople to better demonstrate AI tools to businesses.
“Forward Deployed Engineers are quickly becoming essential to large scale AI transformations, as seen at companies like Plantir and OpenAI,” says Lamanna. “Just as we are changing the way we do software and product development, Microsoft will need to adopt this new way of delivering AI solutions to customers.”
- Microsoft reports strong cloud earnings, with Windows and Xbox up, too. Microsoft’s earnings last week sent the stock price soaring to the point where it briefly became the second $4 trillion company. The better-than-expected earnings included Microsoft reporting its Azure revenue for the first time. Azure generated more than $75 billion in revenue during the 2025 fiscal year. Xbox also had a good quarter, with content and services revenue up 13 percent and overall gaming revenue up 10 percent year over year. Xbox hardware is still struggling, though, with hardware revenues down 22 percent this quarter.
- Satya Nadella was good for his $80 billion. Earlier this year, there was a lot of doubt over the $100 billion in funding behind The Stargate Project, and Nadella was quick to defend Microsoft’s own investment in cloud and AI data center projects. “I’m good for my $80 billion,” said Nadella at the time. Microsoft is now spending $30 billion on its AI infrastructure investments next quarter, which totals $120 billion over a year if it keeps that spending up each quarter.
- OpenAI’s new GPT-5 model arrives today. Microsoft-owned GitHub spilled the beans on GPT-5 a little early, just as OpenAI teases a release during a “LIVE5TREAM” at 10AM PT / 1PM ET today. Expect to see four new model variants, with “enhanced agentic capabilities” and the ability for GPT-5 to handle “complex coding tasks with minimal prompting.” If GitHub is ready with GPT-5, then you can bet that Copilot and Azure AI Foundry will also be ready with GPT-5 later today.
- Hey Microsoft, is it ‘Xbox PC’ or ‘Xbox on PC’? Microsoft has been using the “Xbox PC” and “Xbox on PC” branding terms recently, and it looks like the company has finally settled on Xbox on PC. It’s a new approach to advertising that games are available on Microsoft’s Xbox app on PC, and a new way to compete with Steam. The Xbox on PC branding isn’t too different from just Xbox PC, but it’s a subtle change that makes it sound more like you’re getting Xbox games on PC rather than needing some kind of Xbox PC hardware. Either way, Microsoft still faces challenges convincing consumers to opt for Xbox games on PC over simply buying them on Steam.
- Microsoft’s Windows XP Crocs are no joke. Microsoft has created limited-edition Windows XP-themed Crocs based on the classic Bliss wallpaper. They even come with Clippy and Recycle Bin shoe charms. They’re currently available for Microsoft employees to preorder for $80, ahead of a “worldwide launch.”
- Microsoft has an AI agent that can detect malware. Microsoft announced Project Ire this week, an autonomous AI agent that can analyze and classify malware without assistance. Developed by Microsoft Research, Microsoft Defender Research, and Microsoft Discovery & Quantum, Project Ire is the first agent at Microsoft to independently author a conviction case “strong enough to justify automatic blocking” of an APT malware sample.
- Microsoft’s plan to fix the web with AI has already hit an embarrassing security flaw. Researchers have already found a critical vulnerability in the new NLWeb protocol Microsoft made a big deal about just a few months ago at Build. NLWeb offers ChatGPT-like search for any website or app, but security researchers have discovered an embarrassing flaw just as Microsoft is deploying the new protocol with customers like Shopify, Snowlake, and TripAdvisor. Anyone could read sensitive files, including system configuration files and even OpenAI or Gemini API keys. Microsoft has now patched the flaw but is refusing to issue a CVE, an industry standard for classifying vulnerabilities.
- Microsoft makes OpenAI’s new open model available on Windows. OpenAI released a new, free and open GPT model earlier this week that can run on a PC. Microsoft was quick to make it easy to run on Windows, with the lightweight gpt-oss-20b model now available on Windows AI Foundry. You’ll need a PC or laptop with at least 16GB of VRAM, and the gpt-oss-20b model is optimized for code execution and tool use. Microsoft says it’s “perfect for building autonomous assistants or embedding AI into real-world workflows, even in bandwidth-constrained environments.” Microsoft is also working on a macOS release.
- Nvidia will support GeForce drivers on Windows 10 until October 2026. Microsoft is ending support for Windows 10 in October, but Nvidia is committed to continue releasing its new GeForce Game Ready drivers until October 2026. That matches the year of extended security updates that Microsoft will offer consumers, and will ensure Windows 10 users continue receiving the latest optimizations for new games and apps.
- Bing made Google dance and then stole some search traffic. Microsoft CEO Satya Nadella wanted to make Google dance two years ago, with an AI overhaul of Bing that was designed to steal Google’s all-important search market share. Now, there are plenty of signs that Microsoft has successfully taken search share off Google, both in the US and worldwide. Comscore and Statcounter both note that Bing has increased its search share by a small percentage on desktop. That could mean Microsoft’s tricks to keep people using Edge and Bing as defaults are having an impact on its search share.
- Microsoft is ending Windows 11 SE, its ChromeOS competitor. Microsoft is ending support for Windows 11 SE next year, five years after it launched the operating system on low-cost laptops that were designed to compete with Google Chromebooks. Windows 11 SE was only available on devices for schools, but it was designed to keep Microsoft’s education customers from switching to ChromeOS. As demand tails off for Chromebooks, Microsoft isn’t chasing Google’s low-cost laptops quite as hard as it once was.
- 8BitDo’s first wireless Xbox controller is a surprise Rare collaboration. I was surprised to see Xbox game studio Rare team up with 8BitDo, and not Microsoft, for a special anniversary edition Xbox controller. The officially licensed controller features a gold and blue design, with plenty of Easter eggs to celebrate Rare’s 40th anniversary. It’s also 8BitDo’s first wireless Xbox controller, with a small USB dongle and not Microsoft’s native Xbox Wireless protocol.
- Microsoft’s Black Hat-like hacking event returns with bigger rewards. Microsoft’s hacking event, Zero Day Quest, is back and accepting nominations until October 4th. This year there is up to $5 million in bounty awards, up $1 million from last year. Microsoft is even offering multiplied bounty awards for finding the most critical issues in products like Azure, Copilot, and Microsoft 365. Security researchers will also get a chance to qualify for a live hacking event at Microsoft’s headquarters in spring 2026.
- Microsoft is bringing its Xbox Copilot to the Windows Game Bar. Microsoft started testing its Xbox Copilot on iOS and Android earlier this year, and now it’s bringing the chatbot to the Game Bar feature on Windows 11. If you’re part of the PC preview for Xbox features, you can now start testing a new Gaming Copilot widget for the Game Bar. The Gaming Copilot knows what games you’re playing and can take screenshots to answer questions, and it’s an early step in Microsoft’s broader vision to turn its Xbox Copilot into an AI gaming coach.
- Microsoft’s 2030 vision for Windows is all about AI. Microsoft quietly launched a new YouTube series on its Windows channel earlier this week, discussing the company’s vision for Windows in 2030. The first in the series features David Weston, vice president of enterprise and OS security at Microsoft, who predicts “the world of mousing and keyboarding around will feel as alien as it does to Gen Z [using] MS-DOS.” Microsoft has already started pushing AI agents inside Windows 11, and I’m only expecting the pace of AI change in Windows to accelerate over the next five years.
- Microsoft tries to keep its consumer Copilot out of New York Times AI copyright case. Microsoft is trying to argue that its current version of Copilot for consumers should be excluded from legal discovery in the copyright lawsuit filed by The New York Times. Microsoft argues its latest version of Copilot “did not exist at the time News Plaintiffs filed their complaints” and “is built on a different platform with new system architecture.” Copilot still uses the same core OpenAI models, though, and that’s exactly what lawyers for the NYT are arguing.
- Microsoft’s data center strategy is still in pause mode. There have been multiple reports of Microsoft pausing data center builds over the past six months, alongside leasing freezes. Now, SemiAnalysis reports that Microsoft’s committed data center construction is down year over year, and that “almost no new leases were signed in the past 12 months.”
- The Windows Vista boot sound bug in Windows 11 builds has been fixed. Microsoft accidentally swapped Windows 11’s startup sound with Vista’s in recent test builds of the operating system. This is now fixed in the latest Canary builds of Windows 11. It’s a shame, because I actually prefer the Vista boot sound.
I’m always keen to hear from readers, so please drop a comment here, or you can reach me at [email protected] if you want to discuss anything else. If you’ve heard about any of Microsoft’s secret projects, you can reach me via email at [email protected] or speak to me confidentially on the Signal messaging app, where I’m tomwarren.01. I’m also tomwarren on Telegram, if you’d prefer to chat there.
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