Microsoft transforming Fabric into AI's foundational layer

Microsoft continues to convert Fabric, its combined data management and analytics platform, into a foundation for AI.

On Tuesday at the European Microsoft Fabric + SQL Community Conference, a user conference in Barcelona, Microsoft revealed an integration between Fabric IQ -- a context layer within Microsoft IQ that serves AI with consistent business logic -- and Microsoft Copilot.

In addition, Microsoft introduced IQ sharing so users can share governed data and context across their organization and with third parties, and capabilities in Fabric Apps that allow builders to connect their applications directly to Fabric warehouses, SQL databases, lakehouses and Power BI semantic models without duplicating.

"Microsoft is turning Fabric from a data and analytics platform into an operating foundation for enterprise AI," Michael Ni, an analyst at Constellation Research, told TechTarget. "Power BI, Fabric IQ, real-time intelligence, agents, applications and observability are increasingly running against the same governed context."

It remains to be seen whether Fabric IQ and a new ontology layer can truly become an enterprise context layer, he continued. However, if Microsoft can integrate platforms such as Power BI and Copilot into one operating environment, it could help differentiate the tech giant from other platform vendors aiming to provide context layers for AI.

"Microsoft is not alone in trying to become the context layer for enterprise AI," Ni said, naming Databricks and Snowflake among Microsoft's competitors. "Microsoft's superpower will be its distribution. It can connect Power BI, OneLake, SQL, Copilot and Fabric into one operating environment building from solutions that … already contain businesses metrics and business definitions."

Becoming the Fabric for AI

Over the past year, the dominant trend among data management vendors has been facilitating the delivery of contextually relevant business logic to agents.

Microsoft is turning Fabric from a data and analytics platform into an operating foundation for enterprise AI.

AWS, Databricks, Google Cloud, Snowflake and Teradata have all introduced tools designed to serve agents and other AI applications with context, as have more specialized data management and analytics providers such as Alteryx, Informatica, Tableau and ThoughtSpot.

Microsoft is likewise making context for AI a key tenet of its data management strategy.

"Everything is centered around the concept of context," Amir Netz, Microsoft's chief technology officer for Azure Data, told TechTarget. "Context allows organization to make agents the same way they expect employees to work. That's what makes agents aware of the special sauce every organization has."

The nature of the enterprise is changing, he continued. Once entirely human, the workforce is going to become a hybrid mix of humans and agents. Microsoft's aim with features such as Fabric IQ and Copilot are designed to enable agents to become as reliable as their human counterparts.

"You do that by curating context," Netz said. "Fabric IQ is about providing that dimension of context that explains to the agent what is going on right now in the business. It's almost like virtual reality for agents. We have to take what's happening in the real world, record it and re-create reality for agents."

Beyond the integration between Fabric IQ and Copilot, IQ Sharing and new Fabric Apps capabilities, Microsoft introduced Observability in Fabric to better enable visibility into customers' Fabric estates, updates to databases that underpin AI workflows and a data engineering agent, among a spate of other new capabilities.

"The biggest thing holding back AI at work is context, meaning how well the AI understands a specific company's business," Mike Leone, an analyst at Moor Insights & Strategy, told TechTarget. "These announcements put the business knowledge companies already built in Power BI and Fabric to work across Copilot, apps and agents."

From a competitive standpoint, the individual new features are largely in line with what peers are providing. However, Leone noted that the semantic models that Microsoft customers have been building for years in Power BI give the hyperscaler an advantage when it comes to connecting agents with context.

"Most big data platforms are building semantic layers and agents right now, so Microsoft is in step with its peers on direction," he said. "But … Microsoft knows semantics as well as anyone, since they've managed more than 20 million customer semantic models. Another way Microsoft pulls ahead is by connecting Fabric to Copilot. Very few data platforms also own the AI assistant people use at work."

Meanwhile, a combination of customer feedback and Microsoft's vision led to the spate of new features being revealed in Barcelona, according to Netz. Customer interactions enabled Microsoft to understand where enterprises were having trouble as they tried to move AI agents into production, while the tech giant's vision translated the feedback into new capabilities.

"When you get feedback, what you have to really listen to is what problems are out there, and [figure out] what the customer can't even imagine that we can bring in," Netz said.

The future of Fabric's evolution

As Microsoft plans product development for the final months of 2026, building a complete platform for its Frontier Transformation strategy -- evolving toward a hybrid human/agent workforce -- is its focus, according to Netz. Toward that end, it will continue to improve the front-end user experience through Microsoft Copilot, the Microsoft IQ suite to provide context, and Microsoft 365 to address trust, security and governance.

"It's about helping organizations, end-to-end, on their transformation journey," Netz said. "It's something [every enterprise] has to go through. … We need to help them because AI is not easy."

Ni advised Microsoft to push the interoperability of Fabric IQ, making it easier for enterprises to use Fabric IQ to connect data and AI estates spread across multiple platforms.

"Making semantics, ontology and governed context easy to consume from third-party tools would make Fabric more valuable to existing customers and lower the barrier for organizations that aren't all-in on Microsoft.," he said. "They seem to be heading in this direction, but to easily be part of an enterprise context layer when Microsoft doesn't own the entire stack would make Fabric much more interesting."

Leone, meanwhile, suggested that Microsoft move pieces of Fabric to Azure Local so that customers can better ensure that they remain compliant with AI regulations and data sovereignty rules by using more of Fabric in their own data center.

"A lot of companies … [want to] know that if they have to make a move due to a regulation, Microsoft provides an easy path to do so," he said. "They want the option to bring their data and AI in-house without rebuilding anything."

Eric Avidon is a senior news writer for Informa TechTarget and a journalist with more than three decades of experience. He covers analytics and data management.