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what's Microsoft's plan here? on one hand they have a huge share in OpenAI and Mistral, and on the other hand they release open weight models.

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Building their own models gives them more leverage for negotiating favorable terms with openai. The key to a good negotiation is having a strong BATNA, best alternative to a negotiated agreement.

I think OP poses a strong question.

If you destroy $500B in market cap in your share in said companies to get a better deal in a small segment of your core business...

That might not end up being a very bad deal overall.

The reality is, if MSFT wasn't delivering this SOTA SLMs now, someone else would be doing it within a few months.

Microsoft's push long term seems to be for local-first SLMs. That's the end goal.

Yes: they are building both the software and the hardware for that: https://blogs.windows.com/windowsexperience/2024/12/06/phi-s...

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