Source – Reuters
In a remarkable turn of events, shares of German software giant SAP SE (SAPG.DE) surged by an impressive 7%, reaching an all-time high, following the company’s announcement of ambitious plans for growth in artificial intelligence (AI) and cloud revenue. the organization revealed a major restructuring initiative that involves reshaping 8,000 job roles, emphasizing the company’s commitment to AI-driven business areas. The move is expected to position the company at the forefront of technological innovation and prepare it for the evolving landscape of artificial intelligence.
As part of the restructuring program, SAP intends to invest a substantial 2 billion euros ($2.2 billion). This fund will be allocated to retraining existing employees with AI skills or facilitating voluntary redundancy programs for those to be replaced. While this may lead to workforce adjustments, the company envisions ending 2024 with a headcount similar to current levels, showcasing its strategic approach to workforce management.
SAP’s Deep Dive into AI with OpenAI’s ChatGPT and GenAI Investment Pledge
SAP’s foray into AI isn’t a recent development. The company initiated experiments with OpenAI’s ChatGPT early on, seizing the opportunity presented by the rising prominence of generative AI technology. As of last year, SAP declared its intention to integrate ChatGPT into its products. The German software giant now anticipates that GenAI, as it calls it, will fundamentally transform its business. To support this transformation, the organization has committed to investing over $1 billion in AI-powered technology startups through its investment arm, Sapphire Ventures.
Investment strategists, such as Jürgen Molnar from brokerage RoboMarkets, acknowledge the significance of the company’s strategic adjustments. Molnar highlights that while some employees might face changes, HR policies are seen as less of a cost issue and more of a strategic imperative. He points out that the restructuring is vital for preparing the company for the age of artificial intelligence, emphasizing the emergence of numerous new opportunities in the process.
Strong Financial Outlook and Efficiency Gains Propel SAP Forward
On a separate note, SAP provided a robust financial outlook, forecasting double-digit percentage growth in revenue from its pivotal cloud business and overall operating profit for the current year. The company reported a 23% growth in cloud revenue to 13.66 billion euros in 2023, adjusted for currency effects, in line with analyst consensus. Looking ahead, the company projects a 24%-27% increase in cloud revenue for 2024.
The restructuring costs associated with SAP’s transformation are anticipated to be concentrated in the first half of the year, with efficiency improvements contributing 500 million euros to operating profit in 2025. Despite the challenging macro environment, SAP’s operating profit rose by a currency-adjusted 13% in 2023, surpassing analyst predictions.
The company is optimistic, expecting this figure to grow between 17% and 21% in 2024. The company’s Chief Financial Officer, Dominik Asam, affirmed the company’s commitment to increasing profitability, even as it adjusted its medium-term outlook due to changes in accounting practices.
In conclusion, SAP’s bold embrace of AI, coupled with a strong financial outlook, has propelled its shares to record highs, solidifying its position as a key player in the ever-evolving tech landscape.
