Global enterprise software giant SAP SE New York Stock Exchange: SAP has hit record highs as its business grows thanks to the tailwinds of artificial intelligence (AI). SAP is an acronym for Data Processing Systems, Applications and Products. The company provides cloud-based business software through its flagship enterprise resource planning (ERP) product.
The suite brings together a comprehensive and synergistic set of business software, including accounting, human capital management (HCM), customer relationship management (CRM), project management and procurement functions, into a single unified platform. The company tailors its software to meet the needs of each specific industry, leveraging the power of artificial intelligence and machine learning in its core applications.
SAP is a leader in the computer and technology sector, competing with multinational enterprise software giants such as International Business Machines Co. New York Stock Exchange: IBM, Microsoft Company NASDAQ: MSFT, Salesforce Inc. New York Stock Exchange: CRM And Oracle Company. New York Stock Exchange: ORCL. Some of their large corporate clients include Clorox Company New York Stock Exchange: CLX, eBay Inc. NASDAQ: EBAY, NVIDIA CO NASDAQ: NVDA And Mondeles International Inc. NASDAQ: MDLZ.
30% of deals in Q3 were related to AI use cases
SAP today
(As of 12/31/2024 5:32 PM ET)
- 52 week range
- $148.38
▼
$256.13
- Dividend yield
- 0.70%
- P/E ratio
- 98.48
- Target price
- $252.33
The upside was certainly evident in third-quarter 2024 adjusted EPS growth of 6% YoY to $1.33, beating analysts’ estimates by 2 cents on revenue growth of 9.4% YoY to $9. 17 billion, also beating the consensus estimate of $9.15 billion. Current cloud backlog up 25% YoY to $15.38 billion. Cloud ERP Suite revenue grew 34% year over year to $3.67 billion. Cloud computing revenue grew 25% year over year to $4.35 billion.
The company has had an ongoing customer transformation to the cloud over the past four years and has made strides with artificial intelligence. Backed by the Gen AI Hub, nearly 30% of cloud orders in the quarter were deals that leveraged AI use cases. SAP has reached its goal of delivering 100 AI use cases across its suite. Consumption of AI by SAP customers more than quadrupled in the quarter. SAP has completed its acquisition of digital adoption platform WalkMe for $1.5 billion.
Sustained forward momentum
SAP expects the momentum to remain stable and move forward. They increased their cloud and software revenue forecast by $433 million at the midpoint from $31.93 billion to $32.24 billion. Cloud revenue is expected to be between $18.41 billion and $18.73 billion, consistent with the previous forecast.
While SAP is not forecasting margin risks in 2025, it is possible to speculate on how AI activities could impact gross margins beyond 2025. However, the company believes AI will drive revenue growth. The company performed very consistently in 2024 as the AI trend remained unwavering, pointing to a strong fourth quarter of 2024.
SAP forms an ascending triangle pattern
An ascending triangle consists of a flat-topped upper resistance line converging with an ascending (rising) lower support line. A breakout occurs when a stock breaks the upper trend line. If the stock falls below the lower ascending trend line, then the pattern does not work because a breakout is forming.
SAP formed an upper flat-top resistance line at $242.10, coinciding with a lower ascending support line that began near the $219.55 swing low. SAP tested the upper trend line resistance almost eight times but failed to break through, and the rising trend line was tested twice. The daily flat support VWAP is $236.35. The daily RSI is rising at 62 bars. Fibonacci (Fibonacci retracement support levels are located at $237.30, $231.10, $224.60 and $214.65.
SAP’s average target price is $252.35which implies a growth potential of 0.96%. and his highest analyst price target is at US$300. The company has eight analyst ratings of “Buy” and one rating of “Hold.” The short interest on the stock is a paltry 0.11%.
Actionable Option Strategies: Bullish investors may consider using cash-backed puts at Fibonacci retracement support levels to buy the dip. If the stock is allocated, then writing a covered call at the upper Fibonacci levels implements a wheel strategy to generate income in excess of the 0.69% dividend yield.
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