The Windsurf acquisition and future of Copilot are at the center of a growing rift between the longtime AI collaborators.

In response, Microsoft has begun developing its own in-house AI models, signaling a move to reduce dependence on OpenAI. Further highlighting the rift, Microsoft has now listed OpenAI as a competitor in its most recent annual financial report—an unprecedented public declaration of rivalry.

Microsoft and OpenAI are engaged in tense negotiations that could unravel one of the most important alliances in AI and fundamentally reorder the industry. Why it matters: Microsoft has injected billions of dollars in OpenAI and made it a cornerstone of its AI strategy,