SAP Upgrades Outlook on Strong Cloud and AI Growth; DeepSeek Competitor Spurs Optimism
German software giant SAP announced a significant upgrade to its full-year financial outlook, driven by robust growth in its cloud and artificial intelligence (AI) operations. The company’s positive revision, coupled with a surprisingly optimistic response to the emergence of a potent Chinese AI competitor, DeepSeek, paints a picture of continued success and innovation within the tech landscape. This positive outlook, however, was not entirely mirrored by the market, which saw a general sell-off driven primarily by concerns about China’s advancing AI capabilities.
Key Takeaways: SAP’s Upbeat Forecast and the DeepSeek Factor
- SAP significantly raised its 2025 operating profit target, driven by strong performance in cloud and AI. The new projection surpasses previous expectations, indicating substantial confidence in the company’s future.
- Cloud revenue growth is accelerating, demonstrating the effectiveness of SAP’s strategic shift towards cloud-based solutions and the growing demand for its services.
- AI is a major growth driver, accounting for half of SAP’s cloud order entry in Q4 2024. This highlights the strategic importance of AI in SAP’s overall business strategy.
- SAP’s CFO views the rise of DeepSeek as positive, suggesting that competition encourages innovation and ultimately benefits SAP’s product development and customer offerings.
- Despite the positive news, SAP’s stock experienced a slight dip following the announcement, likely reflecting broader market concerns about global tech competition rather than any inherent weakness in SAP’s performance.
SAP’s Upgraded Financial Outlook: A Strong Showing
SAP, Europe’s largest software maker, revealed a significantly improved financial outlook for 2025. The company now projects an operating profit on a constant currency basis of between €10.3 billion and €10.6 billion (approximately $10.7 billion to $11.0 billion USD), a substantial increase from its previous target of €10.2 billion. This upward revision demonstrates confidence in its ongoing success and market position. The company also highlighted the acceleration of its cloud revenue growth, a key indicator of its progress in transitioning to a cloud-first model.
Strong Q4 Performance Drives Optimism
SAP’s strong performance in the fourth quarter of 2024 further supports this positive outlook. Adjusted operating profit soared by 25% to €8.15 billion, exceeding even the optimistic projections of analysts polled by the company. This outperformance underscores the effectiveness of SAP’s strategic initiatives and its ability to capitalize on market opportunities. Revenue from its core cloud and software businesses also grew by 11%, slightly ahead of analyst consensus, reinforcing the company’s strength.
CFO Highlights Plan Execution and Future Growth
SAP’s CFO, Dominik Asam, emphasized that the company is performing “very much according to plan,” exceeding expectations, and that the current numbers directly align with the ambitious targets set in their 2025 plan (outlined in October 2020). Asam expressed optimism about the company’s ability to meet its projected targets and reiterated the company’s commitment to its strategic goals. He spoke to CNBC’s “Squawk Box Europe,” further emphasizing their positive outlook.
DeepSeek’s Emergence and SAP’s Unexpectedly Positive Response
The recent emergence of DeepSeek, a Chinese AI startup with a rapidly advancing AI application, triggered a significant global tech market sell-off, raising concerns about intensifying global competition in the AI sector. However, SAP’s reaction was refreshingly different. Instead of viewing DeepSeek as a threat, SAP’s CFO, Dominik Asam, characterized its rise as “very good news” for the company.
AI as a Key Growth Catalyst for SAP
SAP’s positive reaction stems from its own significant investments and success in the AI space. The company emphasized the increasingly critical role of AI in its business, reporting that AI accounted for half of its cloud order entry in the fourth quarter of 2024. CEO Christian Klein highlighted SAP’s strong position in data and what they call “Business AI,” expressing confidence in continued growth through 2027, directly fueled by the integration of Artificial Intelligence into their solutions.
Embracing Competition and Innovation
Asam further explained that SAP actively seeks to improve its AI capabilities by integrating new innovations, and that the rise of competitors like DeepSeek provides valuable pressure to enhance its own offerings. He stated that “competition, innovation on that front is extremely helpful for creating better products for our customers.” This suggests a strategic approach that leverages competition as a catalyst for innovation, rather than a source of apprehension. Asam underscored that as long as the technology itself is relevant, reliable, and developed responsibly, additional competition provides an even greater incentive to provide optimal solutions.
Market Reaction and Conclusion
While SAP’s upgraded outlook and positive assessment of the DeepSeek development are largely positive, the stock price experienced a slight dip following the announcement. This minor market correction likely reflects broader concerns within the global tech sector stemming from the wider market sell-off triggered by the rapid advancement of Chinese AI, rather than any specific doubts about SAP’s performance. Analysts at JPMorgan, for example, indicated that SAP’s upgrade exceeded their expectations. The long-term implications of DeepSeek’s emergence, and the global ramifications thereof, will require further observation. However, SAP’s confident stance and proactive embrace of competition suggest a well-positioned company positioned for continued growth, even in the midst of dynamic and increasingly competitive global AI landscape.
