1. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders In Q2 2024: 31
Shares Short % Of Outstanding: 0.14%
SAP SE (NYSE:SAP) is a key player in the global enterprise resource computing industry. Gartner believes that the firm holds 24% of the global enterprise resource planning industry. This provides SAP SE (NYSE:SAP) with a wide moat, as firms typically do not change their ERP software unless forced to do so because of the high costs and high risks of business disruption involved. Consequently, at a time when non-AI cloud-driven stocks have struggled in a sluggish business environment, the software company has held its own. SAP SE (NYSE:SAP)’s shares are up 54.7% year to date as consistent performance on the earnings front has kept investors bullish. Its second-quarter earnings in July set the shares soaring by 7% after its operating profit jumped 33% annually to touch €1.94 billion and beat analyst estimates of €1.81 billion. A 33% growth is nothing short of incredible in today’s industry where some of the biggest software firms have struggled. To top it up, October was a historic month for SAP SE (NYSE:SAP) as it became the most valuable company in Europe after chip manufacturing equipment provider ASML slipped by a whopping 19.9% following a weaker-than-expected sales outlook. SAP SE (NYSE:SAP)’s third-quarter results saw it grow revenue by 9% to €8.47 billion. Its backlog jumped by 29% to €15.4 billion, with revenue also surpassing analyst estimates of €8.45 billion.
During the Q2 2024 earnings call, SAP SE (NYSE:SAP)’s management commented on why it’s seemingly immune to the headwinds that the broader industry is suffering from:
“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 a software stock institutional investors are piling into according to Jefferies. While we acknowledge the potential of SAP as an investment, 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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