Microsoft said a China state-aligned hacking group used a freely available artificial intelligence attack tool to compromise ConnectWise's cloud backup service and then try to break into more than 2,250 Microsoft 365 customer environments, Reuters reported Wednesday. The finding turns a vendor outage into a nation-state supply chain attack: one software supplier's app permissions became a door into defense, government and financial organizations, and automation shrank the time from first probe to administrator access to hours.
The Primary Wire first reported the intrusion Oct. 17, before anyone had named a culprit. What is new is the attribution and the scale.
What Happened
In a post titled "AI-Driven, Large-Scale Nation-State Campaign Using ARTEX Enables Supply Chain Compromise," Microsoft said it assesses that Storm-0940 was responsible. It describes the group as a China-state aligned actor active since 2021 that steals data across many industries. The post gives no confidence level.
The group used ARTEX, an open-source "agentic" penetration-testing framework. Penetration testing is simulated hacking meant to find weaknesses; in an agentic tool, several AI models act on their own, running each stage from scouting a target to copying data out. Microsoft says ARTEX works with any AI model and is used by threat actors in multiple regions.
From Oct. 10 to 14, the group ran a password-spraying campaign, trying common passwords across many accounts, that logged more than 151,000 failed sign-ins against 327 accounts at eight organizations without a single success. It then used compromised ConnectWise application identities, the credentials ConnectWise's software uses to reach customer tenants with permissions customers had granted, to attempt sign-ins at more than 2,250 tenants at about 2,900 attempts a minute.
Microsoft says most targeting failed, but several attacks yielded privileged access, in multiple cases less than three hours after initial targeting. AI agents then mapped tenants, added credentials to applications and tried to change identities, groups and administrator roles. Targets spanned aerospace and defense, energy, financial services, government, legal, semiconductors, think tanks and other sectors.
Microsoft said the activity did not stem from a compromise of or flaw in its own systems, and that a successful sign-in "does not necessarily indicate that customer data was accessed or exfiltrated." Neither company has said how many customers were compromised, as The Register and CyberScoop noted.
ConnectWise Chief Executive Manny Rivelo said "it appears that a China state-aligned group was responsible" and that containing the app connections does not remove access attackers may already have established inside customer tenants, according to Reuters. A spokesperson for China's embassy in Washington told Reuters that China opposes hacking and rejects what it called smears under the pretext of cybersecurity.
Why It Matters
Managed service providers, the outside firms that run IT for smaller companies and agencies, concentrate access to many clients in a few tools. That makes them both targets and a route into every client they serve. Because the intruders signed in as an application rather than a person, the multifactor checks that guard employee logins did not apply.
For boards, the question is which third-party apps hold standing administrator rights in the company's Microsoft 365 environment, and whether anyone watches what those apps do. Microsoft executive vice president Igor Tsyganskiy wrote on LinkedIn that a wave of AI-driven attacks has been under way since early October and that ConnectWise is one of many, CyberScoop reported.
Context
Microsoft first profiled Storm-0940 in October 2024 as a password-spraying actor drawing on a covert network of hijacked home and small-office routers known as Quad7.
According to its status page, ConnectWise disabled seven application identities Oct. 17, took its Cloud Backup (formerly SkyKick), SaaS Security and Cloud Management services offline, completed a full credential reset Oct. 19 and began a phased restoration Oct. 21 that it expects to take several days.
What to Watch
Watch for any count of compromised organizations and any confirmation of data access. Microsoft advises customers to keep the ConnectWise connections disabled until the vendor says otherwise, preserve logs before deleting the enterprise apps, search tenants by application ID, review activity back to at least Oct. 15 and app sign-ins back to Oct. 1, and audit for new credentials, consent grants and role changes.
