The AI Wire ●

Microsoft and Alphabet both reported September-quarter earnings on Wednesday, October 28. Microsoft posted revenue of $92.3 billion, up 19%, and for the first time disclosed Azure's revenue in dollars: $33.2 billion, up 48% year over year and ahead of the roughly $32.3 billion analysts expected, making Azure its largest product line.

Alphabet reported revenue of $127.6 billion, up 25%, with Google Cloud roughly doubling to $30.7 billion — just behind Azure in dollars, but growing about twice as fast. The market split the two: Microsoft rose after hours, while Alphabet fell roughly 7% after Search and YouTube advertising revenue missed estimates and an $8.7 billion loss on equity securities cut into earnings.

The AI buildout's cost showed up in cash flow. Microsoft's capital spending totaled $45.2 billion in the quarter including finance leases, with free cash flow still positive at $18.6 billion, while Alphabet's free cash flow was negative $9.1 billion as its spending surged.

GitHub used its Universe 2026 conference on October 28 to make Copilot Fusion generally available. Instead of picking a model themselves, developers select Fusion in the model picker and choose an effort level — Standard for everyday work, High for harder tasks, or Max for the most demanding work — and Copilot decides which models to use and whether several should work together.

Fusion combines Copilot's automatic model selection with the multi-model orchestration from Project HydraFusion, which arrived as a research preview in September. Depending on the task it can run a single model, cascade from a cheaper model to a stronger one after a quality check, or have one model critique another's output.

GitHub says Fusion Max scored within two points of Claude Code running Opus 5.5 Max on the Artificial Analysis Coding Agent Index, at about half the cost and 40% less time per task. Enterprise administrators can restrict which models Fusion may draw on and can set it as the default for their users.

Microsoft AI announced MAI Image 2.7 on October 27, its latest image model, launching in preview at No. 3 on Arena Edit and No. 2 on Artificial Analysis's image-editing leaderboard. Its 1,193 Elo is 42 points ahead of MAI-Image-2.6 and just above OpenAI's GPT Image 2.5 Flare, behind only GPT Image 2.5 Sunburst.

This release is editing only: restyling or relighting a whole scene, changing text and symbols while keeping them integrated, and restoring or enhancing existing assets. Microsoft says it improves on 2.6 across all 10 use cases and all 7 editing actions Artificial Analysis evaluated, with its strongest lead in scene and style.

Text-to-image generation is 'coming soon,' in Microsoft's words. The preview is reachable through MAI Playground, Arena and Artificial Analysis, with no Microsoft Foundry deployment and no published price yet.

Microsoft is rolling out a Copilot personalization update for eligible Microsoft 365 business and education accounts, Forbes reported on October 27. Copilot Memory now uses 'work insights' — details it infers from your Outlook emails, Teams chat records and meeting transcripts — to personalize its responses around your preferences, relationships and work priorities.

Microsoft says the data stays confidential and is not used to train its models. Users stay in control in three ways: ask Copilot 'What do you know about me?' for a summary of what it uses, ask it to forget a specific detail, or turn the whole thing off under Settings > Chat Settings > Personalization by disabling 'Chat History and Work Insights'. Once disabled, the inferred memories are deleted after 30 days — and may be restored if the setting is switched back on inside that window.

The feature is Microsoft 365 Roadmap item 551195, scheduled for early to late October 2026, and the Forbes report indicates the rollout is now reaching tenants. It lands in the same month as fresh outside audits of exactly this kind of inference, which found Copilot's self-reported memory list may be incomplete and that individual wrong or unwanted insights cannot always be removed one by one — making the all-or-nothing toggle the practical control.

Microsoft is offering voluntary buyouts to around 60,000 employees, Reuters reported on Monday, October 26, citing Business Insider and a company spokesperson. The offer covers eligible employees at level 70 and below in the United States, Canada, the United Kingdom and India — roughly 27 percent of Microsoft's 223,000-person workforce.

A source familiar with the matter told Reuters the offer reaches key divisions including AI experiences, Copilot, finance, human resources, Xbox and Windows + Devices, while excluding marketing, commercial business and security; reporting rounds added that the staff who run Microsoft's data centers cannot take it either. Microsoft called it a time-limited, voluntary program built on insights from a previous voluntary retirement program — in the spring it offered about 8,750 retirement-age workers a way out, and more than 30 percent took it.

The cost control lands alongside an enormous AI build-out: Reuters has linked it to a 2026 capital-expenditure forecast of about $175 billion, much of it for AI infrastructure. In other words, the company is asking tens of thousands of people in its product and support teams to consider leaving while ring-fencing the people who build and run the data centers its AI strategy depends on.

Read together, Anthropic's public S-1 puts its infrastructure commitments at as much as about $807 billion over the next several years, according to MarketWatch's tally of the filing. The largest single arrangement is not a cloud contract at all: five-year master equipment leases with Broadcom worth $161.2 billion, for hardware deployed in dedicated data centers operated by others, cancellable only on default.

The cloud and compute deals follow: at least $114.5 billion to Google through July 2033, at least $110 billion to Amazon through April 2036, at least $44.9 billion to Microsoft through May 2033, $44.6 billion with Nscale, $41.3 billion with Lambda and at least $20 billion with AMD, plus a further $125 billion to $150 billion planned for TPU capacity from providers other than Google itself. PPC Land's separate sum puts the minimum commitments to Google Cloud, Amazon and Microsoft alone at $269.4 billion.

The splashiest revision is SpaceXAI: Anthropic agreed to spend up to $120.5 billion with Elon Musk's company for Nvidia-GPU compute through 2029, about $36 billion more than the $84.5 billion figure reported from the confidential draft. Once all capacity is delivered, expected by the end of this year, that is about $3.1 billion a month; after initial periods ending in early 2027, either side can cancel on 90 days' notice.

Microsoft's AI diagnostic system, MAI-DxO, correctly diagnosed about 83% of complex medical cases in a peer-reviewed study published Thursday in Science — more than double the roughly 36% scored by generalist physicians working individually with reference materials. Microsoft AI CEO Mustafa Suleyman called the result a step toward what he calls 'medical superintelligence.'

The study, 'Sequential diagnosis with language models,' introduces a benchmark called SDBench that turns a case into a step-by-step encounter: the participant starts from a brief summary, then asks questions, orders tests and commits to a diagnosis. On 304 clinicopathological conference cases from the New England Journal of Medicine, MAI-DxO reached 83.2% accuracy (85.5% in peak configurations) against 36.1% for the physicians; on a second test of 325 emergency-department cases from Beth Israel Deaconess Medical Center, it scored 80.3% against 46.8%. MAI-DxO coordinates several AI agents that act like a panel of doctors, and it is model-agnostic — Microsoft tested it over models from OpenAI, Google, Anthropic, Meta and DeepSeek, with the best results on OpenAI's GPT-5 and GPT-5.5, and the orchestration layer alone lifted a GPT-5.5 baseline from 72% to about 87%.

The caveats matter: these are simulations over published case records, not a clinical trial, and cases this complex are normally handled by specialists or physician teams, who were not part of the comparison. Microsoft is now working with Beth Israel Deaconess to evaluate the system in a real hospital setting. 'The biggest challenge in healthcare delivery at the moment is the growing mismatch between demand and supply of medical expertise,' Dominic King, Microsoft AI's vice president of health, told TechCrunch.

Microsoft is scaling back Copilot in Windows 11 File Explorer, announcing plans to remove eight OneDrive-related Copilot actions from the right-click menu: Summarize, Create FAQ, Compare Files, Ask a question, Explain image, Explain images, Compare images and Extract text. The company describes the change as simplifying Copilot usage and giving users more control over what the menu shows.

The removal begins in mid-November 2026 and proceeds gradually, with completion expected by early December. Microsoft is not retiring the underlying capabilities — users will still reach them through Ask Copilot, the Copilot icon in File Explorer Home, or the OneDrive activity center, at the cost of an extra step.

The move continues a pullback Microsoft's Windows chief Pavan Davuluri flagged in March, when he said the company was reducing unnecessary Copilot entry points, and follows growing user criticism of AI features being added across Windows whether they are wanted or not.

Microsoft published two posts on October 19 expanding Project Perception, its agent-security system, from outside attackers to the agents a company runs itself. The framing, echoed by CEO Satya Nadella, is that an agent should be treated as an insider risk and 'begin with no authority and receive only what it needs' — with the controls sitting outside the model, so a compromised agent cannot switch off the systems watching it.

The pieces: Entra Agent ID now extends to local and previously unknown agents, giving each one an identity separate from the person who launched it; Dynamic Agent Risk scores every agent continuously; Dynamic Conditional Access tightens what an agent may do as its score rises; Dynamic Permissions grant task-scoped, time-limited access; and agents can run inside the Microsoft Execution Container sandbox while Guardian Agents watch for trouble. Microsoft's endpoint security now recognizes 60 types of local agents, including Claude Code, OpenAI Codex and GitHub Copilot.

Coverage ties the bundle to a new Microsoft 365 E7 tier at $99 a seat. Neither official post gives firm rollout dates or preview labels, so the details to watch are availability and plan packaging, expected around Microsoft Ignite on November 17-20.

Microsoft has withdrawn from its agreement to anchor Nscale's planned AI data centre in Loughton, Essex, in reporting first published on October 18 by The Telegraph and followed by Reuters, the BBC and CoinDesk. Microsoft was the site's only announced customer, set to lease its entire initial 50 megawatts and rent about 23,040 Nvidia chips there from early 2027.

The project, announced in September 2025 as the future home of the UK's largest AI supercomputer, stalled on power: grid officials have reportedly told Nscale that a sufficient connection may not be available until the early-to-mid 2030s. Microsoft declined to comment to Reuters. Nscale said its relationship with Microsoft remains strong, that it stays committed to Loughton and is exploring alternative power sources, and that its other Microsoft contracts are not affected.

The cancellation lands a month after Nscale confidentially filed for a US listing, reportedly seeking about $3 billion at a valuation near $35 billion. Its IPO filing says Microsoft and Anthropic together account for roughly 85% of its contract value, so losing the flagship UK anchor — even for grid reasons rather than demand — is the kind of setback investors will price.

The UK's Competition and Markets Authority proposed on October 16 to designate Microsoft with strategic market status (SMS) across its business software ecosystem, under the Digital Markets, Competition and Consumers Act 2024. The proposal spans five activities — operating systems, productivity software, security software, server operating systems and database software — reaching more than a million UK businesses and public bodies and roughly 20 million monthly users.

SMS is not a finding of wrongdoing, but it would give the CMA power to impose tailored conduct requirements later. Its indicative roadmap names four areas for further evidence: cloud licensing, AI features in productivity software — including whether customers can freely choose AI tools beyond Copilot — communications software such as Teams, and security software bundling. The CMA provisionally points to strong positions in each area, plus switching barriers and bundling advantages rivals struggle to overcome.

A consultation runs until November 13, with a final decision due by February 2027. Microsoft says all its products, including Copilot, are open and interoperable and can be used alongside competing services.

Microsoft has told partners that from December 1, 2026, new Microsoft 365 Copilot offers can be bought without a Microsoft 365 base subscription, priced the same as the current offers. The change was reported in coverage of October 16 pricing news built from Microsoft's partner communications.

The same coverage says usage-based billing will be on by default for new Copilot Business licenses sold through Microsoft's CSP channel. That shifts new buyers toward paying for agent work as it is used, rather than only per seat.

Until now Copilot has generally required a qualifying base plan underneath it, so unbundling changes the entry cost for organisations that want Copilot seats without the full suite. The December 1 date, not any new feature, is the deadline budget holders need to plan around.

Update, October 19: the usage-based side of that change now has dates and a cap in partner and admin reporting. For new Copilot Business licences bought directly from Microsoft, pay-as-you-go billing is the default from October 19, with the CSP/reseller channel following on December 1; Microsoft creates the Azure billing setup automatically. The preset spending limit is 4,000 Copilot Credits per user per month — at the $0.01 list rate, up to about $40 per person per month on top of the seat — and admins can raise, lower or zero it. Existing licences are not switched over; until now the metered features stayed locked until an admin connected Azure and set a policy themselves.

Microsoft has told Microsoft 365 administrators, in Message Center notice MC1511056 pushed on October 16, that it will retire the Copilot Studio app inside Microsoft Teams by February 2027. Agent creation in the Teams app is already no longer supported, editing agents there stops in January 2027, and the app itself disappears the following month.

Anyone who builds, edits, publishes or manages classic-style chatbot agents from inside Teams will need to move to the Copilot Studio web app instead. Microsoft is advising admins to warn affected users, and to update internal documentation, training, bookmarks and helpdesk scripts that point people at the Teams app.

It is a small, practical change, but a telling one: Microsoft is consolidating agent-building into its dedicated web tooling rather than keeping a second, embedded editor alive inside Teams.

Microsoft AI said on October 15 that it has finished pre-training MAI-Base-2, a mixture-of-experts foundation model with 2.8 trillion total parameters and 80 billion active per token. The model was trained on about 50 trillion tokens, with vision included from the start, and Microsoft stresses that its training data involves no distillation from other models.

Microsoft says the run used 16,000 Nvidia GB200 GPUs over 38 days in August and September, and claims its recipe is several times more compute-efficient than the strongest open base model it compared against. Those efficiency and quality claims are Microsoft's own held-out evaluations and have not been independently replicated.

MAI-Base-2 is not released. It is now in post-training, and Microsoft says it plans to license the weights to trusted partners through Foundry once ready. Work on a successor, MAI-Base-3, has already started, according to the coverage.

Microsoft announced on October 15 that Copilot Studio agents can now get their own agent accounts through its Frontier early-access program. An account-based agent receives its own Microsoft Entra ID identity, mailbox and Microsoft 365 presence after publication, instead of borrowing a human user's credentials.

Alongside the accounts, Microsoft added shared business-process memory, so an agent carries forward requirements, unresolved questions and context across review cycles, and automated triggers that let it act proactively on recurring processes. Makers still configure permissions for each tool, and a tool acting as an end user may still require that person's authentication and consent.

The preview is tightly fenced: account-based agents cannot respond to people outside their tenant, cannot read documents labelled Confidential or Internal Only, can generate new documents but not co-author existing ones, and email is limited to in-tenant conversations of up to 250 people. It requires a Frontier-enrolled tenant, Microsoft 365 E5 with the Agent 365 add-on or E7, and a Frontier for AI Teammates licence per agent, with usage billed in Copilot Credits.