Investing.com -- A shake-up inside Microsoft is raising fresh concerns about the company’s AI execution and long-term positioning, according to a new report from Melius Research.

Analyst Ben Reitzes wrote in a note Monday that “Copilot reorganization last week doesn’t seem like it was into strength,” arguing it reflects deeper operational and strategic strain.

The move shifts Mustafa Suleyman away from Copilot and into “superintelligence” and frontier model development, while Jacob Andreou now leads the unified Copilot team reporting directly to CEO Satya Nadella.

Reitzes says the changes follow years of “a confusing, fragmented product experience.”

Melius Research also highlights escalating tension between Microsoft and OpenAI, writing that the company is “considering suing OpenAI, the most important partner it has ever had.”

Reitzes notes that OpenAI “accounts for 45% of the Azure backlog,” yet “the IP sharing with OpenAI doesn’t seem to be making Copilot a winner,” forcing Microsoft to spend more than expected on R&D and to consume more Azure capacity internally.

The note questions the bull case that customers will pay more for Copilot, arguing “we don’t think paying extra for AI is ‘a thing’ after years of compounding SaaS price increases.”

Reitzes adds that AI “waits for no one” and contends Microsoft’s “upside in Azure is capped as it scrambles to fix Copilot and its own models.”

Looking ahead, the firm warns that seat pressure from layoffs and a potential “double-digit” PC market plunge could weigh on major segments.

Reitzes believes these risks are “largely ignored” and cut the MSFT price target to $400, adding that Microsoft “could be a source of cash” as investors rotate into emerging AI leaders.