Microsoft reported 15 million paid Microsoft 365 Copilot users this week, marking the company's first public disclosure of adoption metrics for its flagship AI productivity tool.
The figure represents just 3.3% of Microsoft's 450 million-strong Microsoft 365 user base, a rate analysts labeled "disappointing uptake" despite the company's aggressive marketing push. J.P. Gownder, vice president at Forrester, noted the low conversion rate comes despite Microsoft reorganizing its entire Microsoft 365 product and go-to-market strategy around Copilot.
CEO Satya Nadella revealed during Wednesday's earnings call that daily users of the Copilot app increased nearly three times year over year. He also mentioned "multiples more enterprise chat users" referring to Copilot Chat, a simplified version available to Microsoft 365 customers at no extra cost, though Microsoft provided no specific figures for that free tier.
The disclosure came alongside mixed financial results that highlight the twin forces shaping Microsoft's AI strategy. Revenue climbed 17% to $81.3 billion, beating analyst expectations, but capital expenditure jumped 66% from a year ago to $37.5 billion.
The surge reflects heavy upfront investment required to scale AI services including Microsoft 365 Copilot, GitHub Copilot, and other agentic applications.
Microsoft's share price dropped six percent in after-hours trading following the earnings release, reflecting investor concerns over the escalating infrastructure costs. Much of the capital expenditure increase is tied to AI infrastructure including GPUs, CPUs, and custom accelerators.
"If I had taken the GPUs that just came online in Q1 and Q2 and allocated them all to Azure, the KPI would have been over 40,"
Nadella said, emphasizing the company's investment across all layers of the AI stack.
The company is simultaneously expanding Copilot's capabilities across multiple fronts. Windows 11 is evolving from a classic operating system to an AI-centric platform, with Copilot integrated as a permanent system function rather than a standalone application. New AI PCs feature physical Copilot buttons on keyboards, though the hardware requirement means many existing Windows 11 computers lack this access point.
Copilot is testing an advanced memory mode that can retain preferences and recurring details instead of treating every prompt as a reset. The feature, rolling out first in the US, brings Microsoft's assistant closer to ChatGPT's memory capabilities. Users gain clearer controls to review what's being remembered and manage saved information.
Pinned conversations represent another quality-of-life improvement, allowing users to keep go-to threads at the top of their chat list. Microsoft is also raising the character limit for prompts to 10,240 characters, enabling users to dump meeting notes, long emails, or rough drafts in one go without slicing content into smaller chunks.
On macOS, Copilot is receiving a significant upgrade that brings it in line with the Windows 11 version. The update includes features such as Podcasts, Imagine, Library, Connectors, search mode in the composer, Read Aloud capability, smarter notifications, and export to PDFs, Word, PowerPoint, or Excel. iPhone users gain a new widget in two sizes for quicker access to common Copilot actions.
Microsoft is extending Copilot integration into PowerPoint with AI-powered photo editing. According to the Microsoft Roadmap, PowerPoint will soon allow users to edit images using Copilot with a single text prompt, eliminating the need to switch to external image editing apps. The feature begins global rollout in February, limited to Microsoft 365 subscribers.
In education, Microsoft unveiled sweeping AI-driven tools at BETT 2026 in London targeting educators and students. The Teach module in Microsoft 365 Copilot, now fully available, consolidates lesson planning, resource creation, differentiation, and assessment into one interface. Educators can generate standards-aligned plans from over 35 countries and create rubrics tied to objectives.
For students, the Study and Learn Agent entering preview in January 2026 turns content into flashcards, fill-in-the-blanks, matching exercises, quizzes, and guides grounded in learning science. The initiatives address research showing six in ten teachers lack AI training while 74% of students expect AI to define their careers.
Despite the aggressive integration, many users rarely use Copilot according to PCWorld analysis. Many users feel AI in the operating system is imposed rather than optimally integrated. Creative results remain difficult to reproduce, leading some users to continue accessing AI via browsers where they can work more specifically.
The UK government's Department for Work and Pensions began a trial of Microsoft Copilot in October 2024, providing access to more than 3,500 staff. The evaluation focused on three key measures: time savings, job satisfaction improvements, and work quality enhancements, aiming to ensure future AI adoption decisions are evidence-based.
Microsoft's GitHub Copilot also showed strong momentum, with subscribers growing 75% year-on-year. The coding assistant now supports multiple AI models and workflow automation for developers, reinforcing enterprise adoption of AI-powered development tools.
Looking ahead, Microsoft expects continued strong growth across AI-infused products even as capital expenditure moderates sequentially. The company forecasts Azure revenue growth between 37% and 38% for the next quarter while emphasizing the ongoing balance between supply-constrained capacity and first-party AI deployment.
"As an investor, when you think about our CapEx, don't just think about Azure, think about Copilot,"
Nadella said. "We don't want to maximize just one business of ours. We want to be able to allocate capacity, while we are supply constrained, that allows us to build the best portfolio."
The earnings call revealed that 45% of Microsoft's $625 billion commercial backlog is tied to OpenAI, prompting questions about concentration risk. CFO Amy Hood attempted to reassure investors, noting that 55% or roughly $350 billion relates to the breadth of Microsoft's portfolio across solutions, Azure, industries, and geographies.
For enterprise customers, the developments underscore a strategic imperative: investing in AI capabilities is no longer optional. Organizations must balance the benefits of agentic platforms, productivity Copilots, and developer tools against rising infrastructure costs and limited cloud capacity.
Early adopters can secure competitive advantage, but latecomers risk falling behind as AI becomes embedded in enterprise workflows.
