SAP SE (SAPG.DE) shares surged by 7% to reach an all-time high following the German software firm’s announcement of its growth forecast in cloud revenue and plans to restructure 8,000 jobs to prioritize artificial intelligence (AI)-driven business areas.
To facilitate this transformation, SAP intends to invest 2 billion euros ($2.2 billion) in a program aimed at either retraining employees with AI skills or replacing them through voluntary redundancy programs. The company anticipates maintaining its headcount at current levels by the end of 2024.
SAP has been quick to embrace generative AI technology, particularly OpenAI’s ChatGPT, announcing its plans to incorporate it into its products early last year.
The company envisions GenAI as a fundamental driver of change in its business and has committed to investing over $1 billion in AI-powered technology startups through its investment arm, Sapphire Ventures.
Investment strategist Jürgen Molnar at brokerage RoboMarkets noted, “The right adjustments are being made, and the company is being reorganized to prepare it for the age of artificial intelligence.”
He emphasized that the transformation is less about cost and more about seizing strategic opportunities.
In a trend seen across the tech industry, SAP’s restructuring efforts align with the shift towards artificial intelligence software and automation, resulting in significant layoffs at companies like Google and Microsoft.
The majority of the restructuring costs will be incurred in the first half of the year, contributing 500 million euros to operating profit by 2025, thanks to efficiency improvements.
SAP also provided a strong outlook for the future, forecasting double-digit percentage growth in revenue from its core cloud business and overall operating profit for the current year after exceeding analyst consensus for 2023 figures.
In terms of cloud revenue, SAP anticipates a growth rate of 24%-27% in 2024, building on the 23% growth reported for 2023.
Operating profit, which increased by 13% last year to reach 8.7 billion euros, exceeded predictions. For 2024, SAP expects a growth range between 17% and 21%.
SAP’s Chief Financial Officer, Dominik Asam, expressed satisfaction with the company’s performance in an adverse macro environment and pledged to further enhance profitability in the current year.
The company also adjusted its medium-term outlook, taking into account changes in accounting practices, lowering its 2025 operating profit target to 10 billion euros from the previous estimate of approximately 11.5 billion euros.