- Microsoft considered buying Cursor in recent weeks but never made an offer, sources told CNBC.
- SpaceX secured rights to acquire Cursor for $60 billion just days later, blindsiding VC firms.
- GitHub Copilot has 4.7 million paying subscribers, but Microsoft stock has dropped 10% this year.
Microsoft eyed a deal for Cursor, the AI coding startup that just commanded a $60 billion price tag from SpaceX. According to two people familiar with the matter who spoke to CNBC, the Redmond giant considered an acquisition in recent weeks before walking away without submitting a bid. The decision has analysts questioning whether Nadella missed the moment to secure AI coding dominance.
The timing is brutal. Cursor has emerged as the dominant force in AI-assisted coding, outpacing Microsoft’s own GitHub Copilot despite the latter’s head start and Microsoft integration. CEO Satya Nadella told analysts in January that Copilot had reached 4.7 million paying subscribers—a 75% increase from the previous year—but those numbers haven’t stopped Cursor‘s momentum or reassured investors. Microsoft shares have dropped 10% this year, lagging behind fellow hyperscalers who have ridden the AI boom to new highs.
The competitive landscape is shifting fast. OpenAI is pushing its own Codex programming app. CEO Sam Altman said on Tuesday that Codex has reached 4 million active users, less than two weeks after crossing the 3 million mark. Anthropic’s Claude Code service has gained popularity this year, helping Anthropic reach $30 billion in annualized revenue this month. Microsoft’s primary role in the space has been as an investor and cloud provider, pumping billions into Anthropic and OpenAI, which have committed to hefty spending on Microsoft Azure.
SpaceX, controlled by Elon Musk, announced this week that it obtained the right to acquire Cursor for $60 billion by year-end, with a $10 billion breakup fee if the deal collapses. The agreement blindsided venture capital firms that had lined up financing for Cursor at a $50 billion valuation earlier this month—underscoring how quickly the AI coding landscape can redraw itself.
Why Microsoft Walked Away From AI’s Hottest Startup
Microsoft’s reluctance to pull the trigger likely stems from its existing commitments in the AI sector. The company has poured billions into OpenAI and Anthropic, securing cloud computing contracts that have made Azure the infrastructure backbone for both Claude and GPT. These investments have positioned Microsoft primarily as an infrastructure provider rather than a product leader—a comfortable role that generates steady revenue but potentially cedes the user-facing innovation to others.
The GitHub Copilot user base, while substantial, represents a fraction of the broader developer market that Cursor has captured through superior product execution. Cursor’s Composer model and integrated development environment have won over developers who want AI deeply embedded in their workflow, not bolted on as an afterthought. Microsoft’s Copilot strategy has focused on integration across its Office suite and GitHub ecosystem, but developers increasingly prefer specialized tools that do one thing exceptionally well.
The SpaceX deal emerged so suddenly that prospective Cursor investors were caught off guard, according to sources familiar with the fundraising process. SpaceX had offered Cursor access to compute resources in the weeks leading up to the announcement—a preview of the synergies that could come from combining Cursor’s software with SpaceX’s hardware infrastructure. Musk merged SpaceX with his AI startup xAI in February in a $1.25 trillion deal and is preparing what could become the largest IPO in history.
xAI’s Three-Way Dance With Mistral
While Microsoft deliberated and ultimately passed, Elon Musk’s xAI explored an alternative path. According to Business Insider, xAI held talks with both Mistral and Cursor about a potential three-way partnership that would have combined xAI’s compute infrastructure, Mistral’s open-source models, and Cursor’s distribution among developers. Mistral co-founder Devendra Chaplot, a former OpenAI researcher who worked on the company’s Dota-playing AI, has already joined xAI.
The discussions, which took place before SpaceX’s $60 billion acquisition announcement, explored a collaborative arrangement valued at less than what SpaceX ultimately offered. The partnership would have created a European-American AI alliance challenging OpenAI’s dominance, with Cursor providing developer tools that have become essential for modern software engineering. Chaplot’s move to xAI became public shortly after these talks, suggesting the partnership discussions may have evolved into direct talent acquisition.
Microsoft’s decision not to bid on Cursor reflects a broader strategic dilemma facing the tech giant. Having committed tens of billions to OpenAI and Anthropic, the company finds itself locked into partnerships that limit its ability to acquire competing AI products directly. Nadella has positioned Microsoft as the picks-and-shovels provider for the AI gold rush, but Cursor’s ascendance suggests the end-user products may ultimately capture more value than the infrastructure beneath them.
The GitHub Copilot team now faces unprecedented pressure to demonstrate that integration with Microsoft’s broader ecosystem can trump Cursor’s best-in-class coding experience. With SpaceX’s $60 billion bet on Cursor set to reshape the competitive landscape, Microsoft’s window to compete for AI coding dominance may have already closed. Cursor CEO Michael Truell said on X that he’s “excited to partner with the SpaceX team to scale up Composer,” indicating the company has already set its course toward Musk’s orbit.
