SAP SE (SAPG.DE) witnessed a remarkable uptick of 7%, reaching an unprecedented pinnacle, following the disclosure of sanguine projections for its cloud revenue growth. Simultaneously, the German software giant unveiled a strategic restructuring initiative involving 8,000 jobs to synchronize with the burgeoning realm of artificial intelligence (AI).
SAP Strategic Investment in AI Skills and Startups
In a proactive maneuver, SAP revealed plans to channel a substantial investment of 2 billion euros ($2.2 billion) into a program designed to either upskill employees in AI or facilitate their voluntary redundancy. The company, envisioning a workforce comparable to existing levels by the close of 2024, is strategically positioning itself to navigate the transformative impact of GenAI on its business.
Having delved into the potential of OpenAI’s ChatGPT in its early stages, SAP has been actively exploring the integration of generative AI technology into its products. This strategic initiative is further fortified by a commitment to inject over $1 billion into AI-powered technology startups through its investment arm, Sapphire Ventures.
Jürgen Molnar, an investment strategist from brokerage RoboMarkets, underscored the strategic nature of HR policy adjustments. He suggested that amid potential workforce changes, this era of artificial intelligence could spawn numerous opportunities.
Several tech behemoths, including Google and Microsoft, have undergone significant workforce realignments to pivot their focus towards AI software and automation. SAP’s restructuring costs, primarily concentrated in the first half of the year, are anticipated to contribute 500 million euros to operating profit by 2025, propelled by efficiency enhancements.
Positive Outlook: Cloud Revenue Growth and Operating Profit Surpass Projections
In a distinct announcement, SAP unveiled a positive outlook for the current year, projecting double-digit percentage growth in revenue from its pivotal cloud business and overall operating profit. Cloud revenue is slated to ascend by 24%-27% in 2024, following a 23% surge to 13.66 billion euros in 2023, surpassing analyst predictions.
The operating profit, having witnessed a currency-adjusted uptick of 13% in the preceding year to 8.7 billion euros, exceeded analyst projections. Dominik Asam, Chief Financial Officer, expressed contentment with the achieved double-digit non-IFRS operating profit growth in 2023 despite challenging macro conditions. Asam now aims to further augment profitability in the current year.
In light of changes in accounting practices, SAP adjusted its medium-term outlook, revising down the 2025 operating profit target to 10 billion euros from the previous estimate of about 11.5 billion euros. This move reflects SAP’s commitment to adapt and thrive in the evolving landscape of technology and business.
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