SAP Stock Hits Record High After Company’s Massive Pivot Towards AI
SAP’s (NYSE: SAP) Germany-listed shares touched a new record high on Wednesday after the software maker said it planned a significant job restructuring to fuel growth in its AI-oriented business areas and offered a strong outlook for cloud revenue growth this year. The firm’s NYSE-listed shares rose over 5% in premarket trading at the time of writing.
SAP to Restructure 8,000 Jobs and Pivot Towards AI
Shares of SAP SE jumped to an all-time high in Frankfurt trading on Wednesday after the enterprise software maker issued an optimistic outlook for cloud revenue growth and announced a major AI-focused job restructuring plan.
Specifically, SAP intends to restructure 8,000 job roles to drive growth in artificial intelligence (AI)-driven business sectors. Allocating 2 billion euros ($2.2 billion) to the initiative, the company intends to provide AI training for employees or replace them through voluntary redundancy programs.
The company envisions a fundamental transformation in its business with generative AI and has committed to investing over $1 billion in supporting AI-powered technology startups through its investment arm, Sapphire Ventures.
“The right adjustments are being made and the company is being reorganised to prepare it for the age of artificial intelligence,” said investment strategist Jürgen Molnar at brokerage RoboMarkets.
– Jürgen Molnar, investment strategist at brokerage RoboMarkets.
“Even if some employees are likely to fall by the wayside, HR policy is less of a cost issue and more of a strategic one, in which many new opportunities are also likely to arise.”
On the same day, SAP also reported its earnings and revenue for the fiscal fourth quarter and guided for the current year. Notably, the company’s fourth-quarter earnings and revenue missed expectations, but a strong outlook offset the report.
The software firm anticipates double-digit growth in key cloud business revenue and overall operating profit for the current year. The 2023 cloud revenue saw a 23% growth, hitting 13.66 billion euros, aligning with consensus, and SAP projects a 24%-27% increase for 2024. Operating profit, which rose 13% to 8.7 billion euros in 2023, surpassing analyst predictions of a 9% increase, is expected to grow between 17% and 21% in 2024.
SAP’s Restructuring Plan Creates Upside, Analysts Say
SAP’s shares surged over 6% in Frankfurt, reaching a new record high of 161.54 EUR. Similarly, the company’s US-listed stock was up 5.6% in premarket trading.
The stock has been on an overall uptrend over the past year, gaining more than 47%. The surge to a fresh all-time high propelled SAP’s market capitalization to 193.4 billion EUR.
Jefferies analysts weighed in on SAP’s restructuring announcement, saying it “creates upside” for fiscal year (FY) 2025 targets. The move generates “a higher denominator for valuation,” however, whether it justifies a higher multiple “depends on how much future margin expansion has been pulled into FY25,” they wrote.
Do you think the restructuring effort will fuel a new bull cycle in 2024 for SAP? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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