Morgan Stanley: Open-Weight AI Models Are No Software Nightmare 鈥?These Vendors With Enterprise Context and Pricing Power Will Win

The growing use of open-weight artificial intelligence (AI) models is seen by Morgan Stanley as a tailwind that companies such as CrowdStrike (CRWD.US), Datadog (DDOG.US), and Microsoft (MSFT.US) are poised to capture.

Analysts at Morgan Stanley wrote in a note to clients that "the promise of adopting open-weight models is not just that models become cheaper, but that the cost of producing effective intelligence declines, while the volume of intelligence service invocations is likely to rise substantially."

The analysts also said the three companies above, along with Atlassian (TEAM.US), Cloudflare (NET.US), MongoDB (MDB.US), Nutanix (NTNX.US), Palantir (PLTR.US), Palo Alto Networks (PANW.US), SAP (SAP.US), and ServiceNow (NOW.US), are "the biggest beneficiaries of rising open-weight model adoption."

Other companies that could benefit from the rise of open-weight models include Box (BOX.US), Salesforce (CRM.US), Manhattan Associates (MANH.US), Shopify (SHOP.US), and Toast (TOST.US).

The analysts broke it down further, saying that open-weight models 鈥?which the bank judges to be lower cost, though that view remains debated 鈥?create "two distinct opportunities" for incumbent software companies: broadening the boundaries of commercially viable workflows, and amplifying the value of vendors' proprietary assets.

The analysts explained: "The first type of opportunity can drive product adoption and usage, but competitors can seize it too. The second type has higher barriers: falling intelligence costs will significantly increase the value to customers of assets such as enterprise business context, trusted data, telemetry data, secure execution environments, transaction processing, and compliance controls. As long as such capabilities are hard to replicate, vendors will be able to hold pricing even as delivery costs fall, and may even raise prices as the value customers receive increases. Therefore, the biggest winners need both broad commercialization space and pricing power, able to retain part of the cost benefit rather than giving all the gains away through price cuts in fierce competition."