SAP hits record high on AI-focused job restructuring plan; Jefferies sees upside By Investing.com

Shares of SAP SE (ETR:) (SAP) jumped more than 6% in premarket trading Wednesday after the company reported Q4 financial results and announced a plan to restructure 8,000 jobs to focus on AI efforts.

The company’s Frankfurt-listed shares soared 6.28% to an all-time high.

The German software firm posted fourth-quarter EPS of 1.41 EUR, missing the consensus estimates of 1.74 EUR. Revenue came in at 8.47 billion EUR, also below the expected 9 billion EUR.

Cloud revenue grew 20% in the 2023 fiscal year, or 23% at constant currencies. For Q4 alone, cloud revenue growth stood at 25% at constant currencies.

In FY 2024, SAP anticipates achieving €17.0 to €17.3 billion in cloud revenue at constant currencies, reflecting a growth rate of 24% to 27% compared to 2023’s €13.66 billion.

Moreover, the company expects €29.0 to €29.5 billion in cloud and software revenue at constant currencies, representing an 8% to 10% increase over the 2023 figure of €26.93 billion.

The catalyst that drove SAP to a new record high is the company’s newly announced plan to restructure roles for 8,000 jobs to concentrate on growing AI-driven business segments.

Notably, SAP said it will spend 2 billion euros ($2.2 billion) on this initiative to either retrain employees with AI skills or replace them via voluntary redundancy programs.

The software maker, which intends to maintain its current workforce levels by the end of 2024, initiated its exploration of OpenAI’s ChatGPT at the onset of the technology’s growing popularity. The company announced intentions to integrate this generative AI technology into its products in the early part of the previous year.

Having witnessed the transformative potential of GenAI, SAP is now anticipating a fundamental shift in its business. As part of this commitment, the German company has pledged to invest over $1 billion in supporting AI-powered technology startups through its investment arm, Sapphire Ventures.

“A newly announced restructuring programme creates upside to FY25 targets. This creates a higher denominator for valuation, but whether or not this deserves a higher multiple depends on how much future margin expansion has been pulled into FY25,” said analysts at Jefferies.

The bulk of restructuring costs, mainly incurred in the first half of the year, are expected to yield a €500 million contribution to the operating profit in 2025, driven by efficiency improvements.