The new model, internally referred to as MAI-1, is being overseen by recently hired Mustafa Suleyman, the Google DeepMind co-founder and former CEO of AI startup Inflection, the report said, citing two Microsoft employees with knowledge of the effort.

Microsoft did not immediately respond to a Reuters request for comment.

Microsoft has been setting aside large cluster of servers equipped with Nvidia's graphic processing units along with large amounts of data to improve the model, according to the report.

MAI-1 will be "far larger" than the previous smaller, open source models Microsoft had previously trained which means it will be more expensive, the report added.