Technical stocks globally faced significant decline when Chinese cost effective AI model sent shock waves all across with its free app becoming the most downloaded on Apple's US App Store over the weekend. Shaken though, OpenAI has vowed to come out with better models.
Amid this, there were a few stocks defying the turmoil. One such stock with good potential for growth is
SAP SE (NYSE: SAP)
SAP delivered a robust Q3 2024 performance, highlighted by strong cloud growth, improved profitability, and operational efficiencies. The company’s current cloud backlog rose by 25% year-over-year (YoY) to €15.4 billion, or 29% at constant currencies, reflecting sustained demand for its cloud solutions. Cloud revenue increased by 25% YoY to €4.35 billion, with the Cloud ERP Suite driving growth, up 34% YoY (36% at constant currencies). Total revenue grew by 9% YoY to €8.47 billion, supported by an 11% rise in cloud and software revenue to €7.43 billion.
SAP’s cloud-first strategy continues to bear fruit, as the share of predictable revenue increased by 2 percentage points to 84% in the quarter. While software license revenue fell 15% YoY to €0.28 billion, this decline was offset by the company’s ongoing transition to subscription-based models. Maintenance and support revenues, combined with the surge in cloud adoption, are solidifying SAP’s revenue base and enhancing long-term visibility. Profitability metrics were strong. IFRS operating profit rose 29% YoY to €2.21 billion, while non-IFRS operating profit increased 27% to €2.24 billion, driven by disciplined cost execution under the 2024 transformation program. Free cash flow jumped 44% YoY to €1.25 billion in the quarter, aided by improved profitability and lower tax payments. For the first nine months of 2024, free cash flow climbed 47% to €5.03 billion.
SAP continues to focus on strategic growth areas, notably Business AI, with groundbreaking innovations like SAP Knowledge Graph. All AI use cases were embedded in the company’s cloud deals during the quarter, signaling SAP’s commitment to embedding AI across its portfolio. The ongoing restructuring program, aimed at capturing organizational synergies and preparing for scalable future growth, is on track, with restructuring expenses for 2024 estimated at €3 billion. Despite these costs, SAP expects to conclude the year with a slightly higher headcount. Following its strong Q3 results, SAP raised its 2024 guidance. The company now expects cloud and software revenue of €29.5–€29.8 billion (up 10%-11% YoY at constant currencies), an increase from its prior range of €29.0–€29.5 billion. Non-IFRS operating profit guidance was also revised upward to €7.8–€8.0 billion (up 20%-23% YoY at constant currencies), reflecting higher anticipated margins and efficiency gains. SAP’s Q3 performance highlights its leadership in enterprise software, its successful cloud transition, and its strong execution despite a volatile macroeconomic environment. With innovation in AI and a focus on scalability, SAP is well-positioned for sustainable growth and long-term profitability.
Source: Company’s Report
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