SAP SE (SAPG.DE) experienced a notable 7% surge in its stock, reaching an unprecedented high, following the German software company’s optimistic outlook on cloud revenue growth. The firm also disclosed plans to restructure 8,000 roles, emphasizing a shift toward artificial intelligence (AI)-driven business domains.
Allocating 2 billion euros ($2.2 billion) to this initiative, SAP intends to either equip existing employees with AI skills or facilitate voluntary redundancy programs for their replacement. Despite the restructuring, the company anticipates maintaining a workforce similar to current levels by the end of 2024.
SAP has been actively exploring the potential of OpenAI’s ChatGPT since the inception of generative AI technology. It declared its intention to integrate this technology into its products early last year. The company envisions GenAI as a transformative force in its business and has committed to investing over $1 billion in AI-powered technology startups through its investment arm, Sapphire Ventures. The company aims to equip its workforce with essential AI skills, fostering a culture of innovation and adaptability. Alternatively, voluntary redundancy programs will facilitate the replacement of roles, ensuring that the company is staffed with individuals ready to tackle the challenges and opportunities presented by AI.
Jürgen Molnar, an investment strategist at brokerage RoboMarkets, highlighted that the company’s strategic restructuring aligns with the impending era of artificial intelligence. He emphasized that while some employees may be affected, the human resources policy is more of a strategic consideration, presenting numerous opportunities. SAP initiated experiments with OpenAI’s ChatGPT as soon as the generative AI technology gained traction. Last year, SAP made headlines by declaring its plans to embed ChatGPT in its products, underlining its commitment to harnessing cutting-edge technologies for the benefit of its customers.
SAP is not only reshaping its internal structure but also proactively investing in the broader AI landscape. The company is set to revolutionize its business with GenAI and has pledged over $1 billion to support AI-powered technology startups through its investment arm, Sapphire Ventures. This commitment to nurturing innovation highlights SAP’s dedication to shaping the future of technology beyond its organizational boundaries.
In a trend observed among tech giants, including Google (GOOGL.O) and Microsoft (MSFT.O), several companies are streamlining operations by embracing AI software and automation. SAP anticipates that most of the restructuring costs will be incurred in the first half of the year, contributing 500 million euros to operating profit by 2025 due to enhanced efficiency.
Despite the restructuring, SAP’s outlook remains robust. The company foresees double-digit percentage growth in revenue from its key cloud business and overall operating profit for the current year. Cloud revenue is projected to grow between 24% and 27% in 2024, building on the 23% growth reported in 2023. Operating profit, which rose by 13% to 8.7 billion euros in 2023, is expected to increase by 17% to 21% in 2024.
SAP Chief Financial Officer Dominik Asam expressed satisfaction with achieving double-digit non-IFRS operating profit growth in the face of a challenging macro environment. He reiterated the commitment to further increasing profitability in the current year. Additionally, the company adjusted its medium-term outlook on Tuesday, revising the 2025 operating profit target to 10 billion euros, down from the previous estimate of about 11.5 billion euros, to accommodate changes in accounting practices.
As SAP continues its journey into the age of AI, the restructuring announcement marks a pivotal moment in its evolution. With a resilient outlook and a commitment to innovation, SAP is positioning itself as a formidable force in the ever-changing landscape of technology and artificial intelligence. The record-breaking surge in shares reflects not only investor confidence but also the anticipation of a new era for one of Germany’s tech powerhouses.