Morgan Stanley's latest view: Open-source models are not a nightmare for software companies; this group of vendors that command enterprise context and pricing power will prevail.

Title context: Morgan Stanley's latest view: Open-source models are not a nightmare for software companies; this group of vendors that command enterprise context and pricing power will prevail. Text: Usage of open-weight AI models continues to rise, and Morgan Stanley believes that a host of companies including CrowdStrike (CRWD.US), Datadog (DDOG.US), and Microsoft Corporation (MSFT.US) will ride this round of industry tailwinds. Morgan Stanley analysts wrote in a note to clients: "The promise of adopting open-weight models lies not only in models becoming cheaper, but in the declining cost of producing effective intelligence capabilities, while the volume of intelligence service invocations is expected to rise substantially." The analysts also said that 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, Inc. (CRM.US), Manhattan Associates (MANH.US), Shopify (SHOP.US), and Toast (TOST.US). The analysts broke it down further, saying that open-weight models (which the bank judges to be lower-cost, though this view remains debated) create "two distinct opportunities" for incumbent software companies: on one hand, broadening the boundaries of commercially viable workflows; on the other, amplifying the value of vendors' proprietary assets. The analysts explained: "The first type of opportunity can drive product adoption and usage, but competitors can capture it as well. The second type of opportunity 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 difficult to replicate, vendors will be able to hold pricing steady even as delivery costs decline, or even raise prices as customers derive more value. Therefore, the biggest winners need both a broad commercialization runway and pricing powerthe ability to retain a portion of the cost benefits rather than ceding all the gains through price cuts amid fierce competition."