SAP Stock Up 50% in the Past Year: Will the Momentum Last?

SAP SE’s SAP stock is continuing its upward trajectory, with a gain of 50% in the past year compared with 18.6% and 19.8% growth of the S&P 500 composite and the sub-industry, respectively.The company is one of the largest independent software vendors in the world and the leading provider of enterprise resource planning (ERP) software. SAP boasts an extensive partner ecosystem with 20,000 plus partners worldwide in more than 140 countries.SAP’s strong financial performance is buoying the stock trajectory. The company has been primarily concentrating on expanding its cloud business to become one of the leading players in the category. In the last reported quarter, the current cloud backlog — a key indicator of go-to-market success in cloud business — soared 28% (both at nominal and cc basis) to €14.8 billion.Image Source: Zacks Investment ResearchBooming Cloud BusinessIn the second quarter of 2024, SAP’s cloud revenues were €4.15 billion, up 25% year over year on a non-IFRS basis (nominal and cc basis). The uptick resulted from notable 33% growth in Cloud ERP Suite revenues, highlighting the effectiveness of SAP’s Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) solutions. On a non-IFRS basis, cloud revenues related to SaaS and PaaS increased 28% at cc to €4.018 billion. Cloud revenues related to Infrastructure-as-a-Service declined 27% at cc to €135 million. SAP’s cloud business strength was prominent across India, Japan, South Korea, Germany, Brazil and Canada. This business strength also remained strong in the United States, Saudi Arabia and China.Increasing demand for Rise with SAP solution remains the biggest driver. This solution helps companies transform its business processes and operations to become more nimble, digital and intelligent. SAP solution continues to gain significant traction and will aid the company in driving its market share in the cloud ERP solutions space.In the second quarter, Rise with SAP solution was adopted by clients, including Alpargatas, Auckland Council, Blue Diamond Growers, Border States, Copenhagen Airports, ExxonMobil, Navantia, PANDORA, Porsche Informatik, Powerlink Queensland, Prairie Farms Dairy, ProRail, Prysmian, Shiseido Company, Tokio Marine & Nichido Fire Insurance, VistaPrint, Warsaw City Hall and Xerox.Rise with SAP will also help the company boost the uptake of its SAP S/4HANA solution by providing its customers with more options for implementation and support from certified partners.Momentum in other cloud offerings like Grow with SAP and SAP Datasphere, as well as strategic acquisitions and collaborations, bodes well for its cloud business.Given the strong momentum in the cloud business, management anticipates 2024 cloud revenues in the range of €17-€17.3 billion, which indicates an increase of 24-27% at cc on a year-over-year basis. Cloud and software revenues are expected to be between €29 billion and €29.5 billion, which implies 8-10% growth at cc on a year-over-year basis.SAP expects cloud revenues of more than €21.5 billion and total revenues of more than €37.5 billion for 2025.Opportunities in Generative AISAP remains optimistic about the generative AI trend. In April 2024, SAP announced significant advancements in AI for supply chain solutions, aiming to redefine productivity and efficiency in manufacturing sectors. The company announced a collaboration with IBM and Amazon Web Services to make strides in GenAI capabilities and unlock potential business opportunities.  Management announced that it would focus on vital strategic growth areas, especially Business AI and position the company for growth, earlier in 2024. SAP intensified its restructuring efforts, expecting total expenses of roughly €3 billion. This initiative is crucial for aligning SAP’s workforce and resources with long-term business strategies.A Few HeadwindsHowever, continued softness in the Software license and support business segment coupled with global macroeconomic weakness are concerning. Increasing costs and stiff competition are additional headwinds for this Zacks Rank #3 (Hold) stock.Estimate Revision ActivityThe Zacks Consensus Estimate for SAP’s 2024 and 2025 revenues is pegged at $36.7 billion and $40.6 billion, respectively, which indicates growth of 8.8% and 10.6% from the year-ago levels. The consensus estimate for 2024 EPS is pegged at $4.75. The consensus estimate for 2025 EPS implies a rise of 33.4 % from the prior-year actuals to $6.33. The Zacks Consensus Estimate for 2024 and 2025 EPS has increased 4.2% and 3.1%, respectively, in the past 60 days, reflecting analysts’ optimism.Stocks to ConsiderSome better-ranked stocks worth consideration in the broader technology space are Badger Meter BMI, Manhattan Associates MANH and ANSYS ANSS. Badger Meter and Manhattan Associates sport a Zacks Rank #1 (Strong Buy) each, while ANSYS carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Badger Meter’s 2024 EPS is pegged at $4.06, up 4.4% in the past 30 days. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.9%. The long-term earnings growth rate is 17.9%. Its shares have risen 12.9% in the past year.The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.72, up 3.7% in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing once, with the average surprise being 4.8%. Its shares have risen 2.6% in the past year.The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26. MANH’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, with the average surprise being 26.6%. The stock has surged 28.8% in the past year.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Badger Meter, Inc. (BMI): Free Stock Analysis Report SAP SE (SAP): Free Stock Analysis Report Manhattan Associates, Inc. (MANH): Free Stock Analysis Report ANSYS, Inc. (ANSS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks