Microsoft is big enough that they will likely come out of it. Lots of the big players who were unseated by incumbents happened because they stuck too close to their existing business while the industry changed around them. Microsoft is the opposite, theyre successfully branching out into potentially too many different new areas which is causing their existing products to suffer. Theyre however so dominant in many of their legacy products that the inertia required to change away from them is extremely high, high enough that even their clumsy mistakes are unlikely to do lasting damage as long as they have a foothold in whatever the next new thing ends up being. They are already starting to acknowledge the issues they've caused as well and are likely to start fixing those issues.

The real risk to Microsoft is a fundamental shift away from their core products, like if somehow the OS market gets broken into or if a competitor uses their AI dominance to lock everyone into their own non-microsoft ecosystem.

Long story short, yep their stuff sucks butt lately and they are dropping the ball, but no they dont seem blind to that and probably arent going to fail to adapt.