Morgan Stanley, in collaboration with AI-powered market intelligence and research platform AlphaSense, held a webinar on Wednesday to discuss the misconceptions surrounding AI versus software, as well as the path to growth for both sectors.Keith Weiss, an equity analyst at Morgan Stanley, believes that the idea that AI is going to displace software is a &#34;definitional error.&#34;Weiss emphasized that AI is not a separate category from software, but rather an extension of its capabilities. He added that, unlike previous categorical shifts in the software industry, such as the pivot from on-premise to cloud-based solutions, AI does not replace existing software systems. Instead, it enhances them by expanding their functionalities, he explained.On the other hand, generative AI, specifically diffusion engines, is impacting certain areas of the software industry, he noted. Adobe stated in its Q1 report that its photography business is starting to see impacts from generative AI, as customers are moving away from purchasing pre-shot stock photography in favor of generating their own images using AI. This is one of the few instances where generative AI might act as a direct replacement, Weiss told the virtual audience.Generative AI represents a long-term opportunity. Weiss estimates that it could add &#34;~$400 billion to the broader Enterprise Software by 2028.&#34;<h2>Software Multiples Decline</h2>There has been a 33% pull back in software multiples since October 2025, as the sector has been under pressure for quite some time.The decline is attributed to several factors, including a post-COVID spending overhang, tighter IT budgets due to macroeconomic concerns, and the emergence of competitive pressures from AI technologies, Weiss said.He noted that there are three primary sources of pressure on the software sector. First is a much higher level of competition for software vendors, which stems from new AI labs and startups entering the market.&#34;People see a much more competitive environment out there for software vendors, and that competition comes from AI labs. That wasn't part of the equation three or five years ago, and now we're seeing AI labs roll out capabilities, not just models, but agentic layers on top of those models. That worries investors,&#34; he said.Second, are &#34;business model concerns&#34; which Weiss highlighted are fears surrounding the idea that AI will replace human work and have an impact on business models in terms of their pricing strategies. If the need for human labor is reduced, it could alter the value proposition for software vendors, Weiss explained.The last area that concerns investors is the margin profile of these software solutions companies.&#34;If more of this capability comes from generative AI and large language models, these large language models run on parallel instances of GPUs. GPUs are a lot more expensive than CPUs,&#34; Weiss added.The overall margin profile could be negatively impacted due to higher costs associated with running AI models on GPUs.Companies that want to radically change their business processes and offer new capabilities have to be willing to &#34;disrupt themselves,&#34; Weiss added.Overall, it is expected that we will see AI-driven revenue growth across the software industry this year. Companies like Microsoft, Salesforce, and ServiceNow are going to provide attractive opportunities.Photo by Taljat David via Shutterstock

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Morgan Stanley, in collaboration with AlphaSense, held a webinar discussing AI's role in enhancing software rather than replacing it. Analyst Keith Weiss emphasized that AI is an extension of software capabilities, not a separate category. He noted a 33% decline in software multiples since October 2025 due to increased competition from AI, business model concerns, and higher operational costs. Weiss predicts AI could add ~$400 billion to Enterprise Software by 2028, with companies like Microsoft and Salesforce poised for growth.

- Morgan Stanley held a webinar with AlphaSense to clarify misconceptions about AI and software, emphasizing that AI is an enhancement rather than a replacement of existing software systems.  
- Keith Weiss forecasts that generative AI could add approximately $400 billion to the Enterprise Software sector by 2028, despite recent declines in software multiples due to competitive pressures and macroeconomic concerns.  
- The software sector is experiencing pressure from increased competition, business model fears related to AI replacing human work, and higher operational costs linked to GPU usage for AI models.

AI Isn't Replacing Software, It's Supercharging It, Says Morgan Stanley