The right thing in hindsight absolutely would've been for Microsoft to not relent, because of the power balance. Even back then when Intel was still a behemoth, Intel needed Microsoft more than the other way around. Hence why they were the ones begging MS, not the other way around.

What would Intel have done, only supply chips to.. what? Linux machines? Macs? A funny fantasy, obviously unthinkable. Or go wage a marketing campaign against MS? That too in effect would cause lower sales of new machines if anything, directly hurting Intel.

MS would've seen large benefits especially in the long term.

Now this is all very easy to say in 2025, but I think MS should've known this, yet greatly underestimated the negative effects that this would have. The people making the decision probably thought "it'll be okay, and worth staying super chummy with Intel". Probably plenty of golf trips and steak dinners were exchanged.