1. SAP SE (NYSE:SAP)
Number of Hedge Fund Investors in Q2 2024: 31
Short Interest as % of Shares Outstanding: 0.15%
SAP SE (NYSE:SAP) is one of the biggest enterprise software providers in the world, with its product use cases ranging from resource management to financial management, human resources, and business collaboration. This provides it with a wide moat in the industry, as evidenced by its 24% market share of the ERP market according to Gartner. This makes SAP SE (NYSE:SAP) the biggest player in its industry by market share, and its dominance has translated into resilience in an overall slow time for the cloud industry. As evidenced by SAP SE (NYSE:SAP)’s second quarter results, its cloud backlog grew by 28% annually while its ERP revenue jumped by 33%. The firm’s shares have responded accordingly, and are up by 46% year to date. Within its broader cloud portfolio, SAP SE (NYSE:SAP) is currently making the shift from providing perpetual licenses to a subscription, SaaS based model. This spreads out its customer spending over a longer time period, and could lead the firm to post consistent revenue growth in the future. It could also help SAP SE (NYSE:SAP) grow its market share as customers try out services initially, and add recurring revenue to the business.
When asked during the Q2 2024 earnings call about the reasons behind it being immune to macroeconomic headwinds, here’s how SAP SE (NYSE:SAP)’s management replied:
“I mean, Mark, indeed, I mean, we have seen a fantastic performance in half year 1, and now entering half year 2, we see very healthy pipeline. And pipeline means sales pipeline but also I see a very strong innovation pipeline.
Now when you sit together with our product owners and see what we are delivering on GenAI use cases and the customers who are sharing their feedback early on, it’s pretty exciting. I mean they see a ton of value, and you have seen now in Q2 already the first impact of Business AI on our numbers.
And then second, what I also see clearly working now is the best of suite. I mean 4 years back, we were rightfully criticized for having a bunch of best-of-breed solutions. But when you want to have a high-quality AI, when you want to steer your business end to end, when you want to connect your commerce and your omnichannel with supply chain and when you want to connect your procurement with the warehousing, I mean, that all comes together on BTP.
And I would say we are also just at the beginning. I mean please don’t forget, when customers are using their ECC solution, so their on-premise monolithic ERP solution today, that doesn’t mean that they use all the modules in the past. And now with our land-and-expand strategy, we have really, I mean, a motion that customers are really landing. And then they get that they have to connect the different parts of their company and the different parts of the supply chain. And that’s why we also stay confident for the second half of the year.”
SAP is the cloud stock that short sellers are avoiding like the plague. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SAP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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