REFILE-LIVE MARKETS-Debate raging in software sector over AI's future - MS

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DEBATE RAGING IN SOFTWARE SECTOR OVER AI'S FUTURE - MS

A debate is raging in the software-as-a-service industry over the sector's role in the future of AI, and the level of disagreement is unlike typical innovation cycles, according to Keith Weiss, head of U.S. software research at Morgan Stanley.

On the bank's weekly 'Thoughts on the Market' podcast released Wednesday, Weiss shared his takeaways after recently returning from MS's 'Spark Private Company Conference'.

"Typically when we're in these innovation cycles, it feels like everybody is rowing in the same direction, we all understand where the technology is heading, we're all understanding how it's going to be delivered, and it's a race to get there," said Weiss.

"To me, one of the big takeaways was we don’t have that agreement today, there's different players that are looking at this market evolution differently."

He flagged that two diverging views are emerging. On one side, application vendors see SAAS (software as a service) applications playing a big role in making inherently indeterminative AI models more effective and efficient for large enterprises.

On the other hand, venture capital and early-stage investors are worried that AI spells disruption for those same players.

"They think the model itself is going to start to encompass, is going to start to subsume, a lot more of that application functionality, a lot more of that analytics," said Weiss.

He said the debate within the marketplace is interesting and not typically seen during innovation cycles.

Another of his takeaways from recent weeks is just how early we are in the roll-out.

"This wasn’t necessarily at Spark, but earlier in the week I was at a CIO conference. There was 150 CIOs in the room. One of the gentlemen on stage asked a question: 'Who in the room has a good understanding of what we're talking about when we mean agentic AI?'."

"Of the 150 CIOS, four raised their hands," said Weiss, adding that it's still very early days in understanding how this is going to evolve.

Finally, he flagged an increase in excitement around the federal government becoming a better customer for software companies overall.

(Lucy Raitano)

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