Microsoft considered acquiring Cursor before SpaceX locked in $60 billion deal - Tech Startups

Yesterday, we wrote about how SpaceX secured a $60 billion option to acquire Cursor later this year, or pay $10 billion to continue their AI collaboration. Now, a new report from CNBC adds a twist to the story -- and it points to what was happening behind the scenes before that deal came together. As it turns out, Microsoft had been exploring its own move into the AI coding startup space.

For a moment, it looked like Microsoft might step in and take control of one of the fastest-growing tools in AI-assisted software development. That didn't happen. The company chose not to move forward, CNBC reported, citing two people familiar with the discussions. Days later, SpaceX surfaced with a deal that now values Cursor at $60 billion.

Before SpaceX's announcement this week, Microsoft had explored a potential acquisition of Cursor, according to two people familiar with the discussions. The talks didn't go far. Microsoft chose not to move forward, one source said. Both asked not to be named since the conversations were private.

The timing is striking. Demand for AI coding tools has surged as developers look for faster ways to build software, automate workflows, and ship products with fewer resources. Cursor has emerged as a frontrunner in that shift, alongside rivals backed by Anthropic and OpenAI.

Microsoft is hardly absent from the race. Its GitHub Copilot product has gained traction with developers, and the company has poured billions into partnerships with OpenAI and Anthropic, both of which rely heavily on Microsoft's Azure cloud. Still, its role has leaned more toward infrastructure and investment than outright ownership of leading tools.

That backdrop makes its decision to pass on Cursor more notable.

Venture firms had already lined up funding for Cursor at a $50 billion valuation, as CNBC reported earlier this month. The number reflected how quickly these tools are becoming central to modern software development. Cursor's ability to help users assemble apps and websites with minimal friction has turned it into one of the most sought-after platforms in the category.

Then came SpaceX.

The company, controlled by Elon Musk, said in a post on X that it secured the right to acquire Cursor for $60 billion by the end of the year. If the deal doesn't go through, SpaceX will pay $10 billion instead.

"SpaceXAI and @cursor_ai are now working closely together to create the world's best coding and knowledge work AI," the company said in the post. Cursor CEO Michael Truell added on X that he's "excited to partner with the SpaceX team to scale up Composer," referring to the company's AI model.

The agreement came together late in Cursor's fundraising process, catching some prospective investors off guard, a source said. In the weeks leading up to the announcement, SpaceX had already begun offering Cursor access to compute, a key advantage in a market where access to infrastructure often shapes outcomes.

Musk has been tightening his grip on the AI stack. In February, he merged SpaceX with his AI startup xAI in a deal valued at $1.25 trillion. The combined company is now moving toward what could become one of the largest public offerings on record.

Meanwhile, Microsoft faces a different set of pressures. Its stock has dropped 10% this year, trailing peers in the hyperscaler group. CEO Satya Nadella told analysts in January that GitHub Copilot reached 4.7 million paying subscribers, up 75% year over year -- a strong signal of demand, though competition is intensifying.

OpenAI continues to push forward with its Codex programming app. CEO Sam Altman said on X that Codex has reached 4 million active users, less than two weeks after crossing 3 million. Anthropic's Claude Code service has gained momentum as well, helping the company reach $30 billion in annualized revenue this month.

Cursor now sits at the center of that fight. What started as another AI coding tool has quickly become a strategic asset in a race spanning software, infrastructure, and capital.

Microsoft had a chance to own a bigger piece of it. SpaceX decided not to wait.