Microsoft Drops Anthropic's Claude for Its Own Copilot as GitHub's Infrastructure Woes Mount

Microsoft cuts Anthropic's Claude Code licenses to rein in costs while GitHub battles weekly outages, a security breach, and leadership turnover, even as cloud revenue surges.

Microsoft is navigating a two-front challenge in its AI transformation — one internal, the other at its critical GitHub subsidiary. Inside the Redmond campus, engineers are being forced off a popular third-party coding tool to rein in spiraling costs, even as GitHub grapples with a punishing run of outages, a security breach, and a leadership vacuum. Together, the episodes underscore the operational friction behind Microsoft's ambitious AI build-out, even as its cloud revenue surges.

The company has terminated corporate licenses for Anthropic's "Claude Code" within its Experiences & Devices Division — the unit responsible for Windows, Office, Teams, and Surface. The culprit: a token-based pricing model that pushed expenses through the roof as engineers used the tool heavily. Microsoft is now directing its developers to migrate to GitHub Copilot CLI instead, with a completion deadline of June 2026. The timing is deliberate: GitHub is itself switching Copilot to usage-based billing starting early next month, with prices in the U.S. climbing by 20% to 37%.

That transition comes at a delicate moment for GitHub. Between May 2025 and April 2026, the platform suffered 257 incidents, 48 of them classified as severe — roughly one major outage per week. February was the worst month on record with 37 interruptions. The CI/CD service Actions bore the brunt, accounting for 57 breakdowns over the same period. The root cause lies in a delayed migration to Microsoft's Azure cloud; GitHub still relies on older data centers that can't scale fast enough. Chief Technology Officer Vlad Fedorov pledged last October to increase capacity tenfold, but by February acknowledged that figure was insufficient — the platform now needs thirty times its current scale.

The infrastructure strain has been compounded by a security breach. An employee device was compromised through a manipulated Visual Studio Code extension, giving attackers access to roughly 3,800 internal code repositories. Microsoft was also forced to disclose a remote-code-execution vulnerability. Meanwhile, the leadership bench has thinned. Former GitHub CEO Thomas Dohmke stepped down without a direct replacement; the team now reports into Microsoft's CoreAI unit. Julia Liuson, a 34-year veteran who headed the Developer Division, announced her retirement in April.

The turmoil is costing GitHub market share. Rival Cursor raised $2.3 billion in a Series D round last November at a $29.3 billion valuation — nearly doubling in six months. GitHub Copilot, once the undisputed leader in AI-assisted coding, is losing ground. Prominent developer Mitchell Hashimoto, co-founder of HashiCorp, voiced frustrations publicly, saying GitHub is no longer a place for serious work when it locks users out for hours at a time.

Yet the broader Microsoft machine is humming. Revenue for the fiscal third quarter hit $82.89 billion, up 18% year over year, with net income climbing 23% to $31.78 billion. Azure and cloud services grew 40%, and the AI business is now running at an annualized revenue run rate of $37 billion. LinkedIn added 12% in sales, and CEO Satya Nadella highlighted that over 10,000 customers use more than one AI model on Azure Foundry, with the number of clients deploying both Anthropic and OpenAI models doubling quarter over quarter.

The stock has not escaped the headwinds, however. Shares traded at 357.65 euros as of the latest reading, 23% below their 52-week high of 467.45 euros and down 11% year to date. The forward price-to-earnings multiple stands at roughly 25 times — well under the five-year average of 34. That discount has caught the attention of hedge fund manager Bill Ackman. Pershing Square began building a position in February that has since grown to $2.09 billion, representing 15.3% of the portfolio. Ackman described the valuation as a rare opportunity.

Microsoft is not slowing its investment. It plans $190 billion in infrastructure spending in 2026, with Windows 11 set to receive AI features such as an "Ask Copilot" integration in the taskbar and a "Click to Do" tool for Excel in the middle of next year. The Copilot sidebar is being tested in Windows, and the floating Copilot button in Office is moving back into the ribbon. The company's partnership with OpenAI runs through 2032 — non-exclusive but foundational to its enterprise business. The internal tooling shift to Copilot is part of the same cost-discipline story: as Microsoft bets big on AI, it is also looking to rein in the bill for the tools that build it.