2026 Predictions: Microsoft Will Buy an AI Coding Startup

Two years ago, Microsoft dominated the market for AI coding tools, which automatically generate code for developers.

That’s because it got early access to OpenAI’s models through its partnership with the startup, and at the time, Microsoft led the pack in code generation. As a result, Microsoft moved quickly to launch GitHub Copilot as the first widely available AI coding product in 2022.

Today, Microsoft has lost a lot of ground to tools like Cursor and Anthropic’s Claude Code, which closely compete with GitHub Copilot. Recent third-party estimates show those three products each have around a quarter of the market.

So I picture Microsoft acquiring an AI coding disruptor like Cursor, Cognition or maybe a smaller startup. It could help Microsoft win more cred with developer customers that have fled from GitHub Copilot, and it would fit with Microsoft’s pattern of paying to acquire (or acqui-hire) technology and talent from leading AI startups, including its $650 million deal in March 2024 to license Inflection’s AI models and hire most of its staff. Those unorthodox deals, which Google and others have also employed, allow tech companies to avoid the regulatory scrutiny that traditional acquisitions must go through.