Shares of German software company SAP saw an upward surge on Thursday following a solid third-quarter earnings report. SAP’s American depositary receipts (ticker: SAP) climbed 5.4% after the market opened, reflecting a 47% gain over the past year.
Strong Performance by SAP’s Cloud-Computing Unit
Chief Executive Christian Klein attributed the company’s success to its thriving cloud-computing unit. SAP has shifted focus from selling software licenses to subscription-based services, which not only generate more profit but also provide a stable stream of recurring revenue. This strategic move has resulted in an operating-profit margin increase of 29.4% in Q3, up from 27.8% in the previous year.
Positive Assessment by Oppenheimer Analysts
Analysts at Oppenheimer, led by Brian Schwartz, lauded the management’s efforts in improving profit margins and free cash flow. Their positive assessment of SAP’s performance is reflected in their Perform rating on the stock without a specified price target.
Harnessing the Power of Artificial Intelligence
Capitalizing on the potential of artificial intelligence (AI), SAP has invested in generative AI companies and expanded its partnership with Google Cloud. The company remains open to the possibility of AI-related acquisitions, with recent investments made in AI companies Aleph Alpha, Anthropic, and Cohere.
Overall Positive Results Amid Concerning Trends
J.P. Morgan analysts expressed their confidence in the robust set of results achieved by SAP, considering the prevailing concerns and deteriorating trends within the industry. They hold an Overweight rating on SAP’s German-traded stock with a price target of 138 euros. Currently, shares are trading at 127 euros.