Microsoft CEO Satya Nadella criticized Anthropic's content restrictions on its Fable AI model during an internal meeting with engineers, calling the limitations nonsensical.

"If you use Fable, when it refuses for any random thing, it just is like, when was the last time you had a creation tool that was so editorially controlled?" Nadella told Microsoft's Copilot AI team, according to remarks obtained by CNBC. "It doesn't make sense."

The comments target Anthropic's practice of blocking certain requests to Fable, sometimes routing users to older model versions when they ask about topics like large-scale model creation. The startup has faced criticism on social media for these rejections.

Anthropic temporarily cut off Fable access in June following a US government export control directive, restoring it in July with enhanced safeguards that "flag a slightly higher fraction of harmless requests."

Microsoft's AI strategy shift

Nadella's criticism comes as executives increasingly turn to cost-efficient models beyond the top frontier labs. Chinese startup Moonshot AI announced an open-source model this week that it claims surpasses recent releases from Anthropic and OpenAI.

The remarks represent rare public criticism of a valued partner. Microsoft invested $5 billion in Anthropic in November, with the startup committing $30 billion to Microsoft's Azure cloud infrastructure.

Microsoft has since launched Copilot Cowork, a business productivity assistant powered by Anthropic's models. The partnership remains significant despite Nadella's frustrations.

"It can't be that there are only two companies in the world with token capital, and everybody else is renting it," Nadella told engineers. "It makes no economic sense."

Microsoft offers its Foundry service with over 11,000 models, including options from Anthropic and OpenAI. The company announced its own in-house models in June, including one for coding.

Nadella also praised Microsoft's decision to unify consumer and corporate Copilot products under former Snap executive Jacob Andreou, calling it something "we should have done maybe day one."

Microsoft reported over 20 million paid Copilot seats in April, representing 4% of its cloud-based Office customer base. The company's shares have fallen 17% this year amid investor concerns about AI disruption.