As artificial intelligence reshapes the software industry, concerns about its impact on developer jobs are giving way to optimism. According to Morgan Stanley Research, the rise of AI-powered coding tools is not eliminating jobs—it’s creating new opportunities for developers and software companies alike.
“Contrary to current market concerns that AI will replace human developers, we believe it will enhance productivity and lead to more hiring,” says Sanjit Singh, who covers infrastructure software and analytics at Morgan Stanley Research. “As enterprises build more complex applications and tackle long-standing technology debt, the demand for skilled developers will grow.”
As AI coding assistants and agents become standard tools in development workflows, the role of traditional software engineers is likely to shift to more complex applications. Developers are increasingly acting as curators, reviewers, integrators and problem-solvers—making them more strategic and valuable.
“The software developer workforce should expand significantly,” Singh says. “We expect headcount growth rates to range from the U.S. Bureau of Labor Statistics’ forecast of 1.6% annually through 2033 to the more aggressive estimate of 10% through 2029 by research firm IDC.”
However, the surge in AI-generated code is creating bottlenecks in other stages of the software-development lifecycle. Code review and testing are some examples: The volume of software increases significantly with AI coding, but higher volume could mean more bugs and more rework. Engineers have a lot more AI code to review and test.
This challenge presents a new growth avenue for software providers, which are creating AI agents to work side by side with human developers. Software companies will deploy AI not only in coding, but also in other areas like testing, security, verification and deployment. Humans will remain in the loop for oversight, design and decision-making.
As software gets cheaper and faster to build, organizations won’t just do the same work with fewer people: They likely will do more and have more products to sell, boosting the growth outlook for the industry. The software development market is likely to expand at an annual rate of 20%, rising from $24 billion in 2024 to $61 billion by 2029, according to Morgan Stanley Research’s estimates.
“For investors, this implies an attractive opportunity, with the potential of higher gains as business models evolve to account for the symbiotic role that developers and AI will play in the software development process,” Singh says.
Survey Suggests Software Is a Priority
A Morgan Stanley AlphaWise survey of chief information officers indicates that software-related spending is a top priority list for 2026.
CIOs expect to increase spending in software by 3.9% next year – a slight acceleration from the gain of 3.8% this year – in addition to a 3% increase in communications spending, 2.5% in IT services and 1.6% in hardware.
“The results highlight the resilience of software investment, even in uncertain times,” says Keith Weiss, who leads Morgan Stanley Research’s software coverage in the U.S. “The survey also indicates a broadening opportunity for software companies to capitalize on the rapid diffusion of AI.”
The survey was conducted from Aug. 5 to Sept. 9 with 70 CIOs in the U.S. and 30 in Europe.
