German software firm, SAP SE, has seen its shares surge by an all-time high of 7% following its announcement of a growth forecast in cloud revenue, and plans to restructure roles for 8,000 jobs, focusing on artificial intelligence (AI)-driven business areas.
SAP intends to invest €2 billion ($2.2 billion) in a program to retrain employees with AI skills or replace them through voluntary redundancy programs. The company, which expects to end 2024 with a similar headcount, has been experimenting with OpenAI’s ChatGPT and aims to embed AI technology in its products. SAP also plans to invest over $1 billion in AI-powered technology startups through its investment arm, Sapphire Ventures. The company anticipates AI, specifically GenAI, to fundamentally change its business.
SAP’s restructuring move aligns with a broader trend in the tech industry, where companies are turning to AI and automation, leading to workforce realignment and layoffs. The restructuring costs for SAP are expected to be concentrated in the first half of the year, contributing €500 million to operating profit in 2025 due to efficiency improvements.
Regarding financial outlook, SAP forecasts double-digit percentage growth in revenue from its key cloud business and overall operating profit for the current year. The company reported 23% growth to €13.66 billion in 2023, and expects cloud revenue to increase by 24%-27% in 2024.
Operating profit, which rose by 13% to €8.7 billion in 2023, is expected to grow between 17% and 21% in 2024. SAP’s CFO, Dominik Asam, expressed satisfaction with achieving double-digit non-IFRS operating profit growth in 2023 despite challenging macroeconomic conditions, and intends to further increase profitability in the current year.
As part of a separate announcement, SAP adjusted its medium-term outlook, lowering its 2025 operating profit target to €10 billion from about €11.5 billion, while taking into account a change in accounting practices. The company’s strong outlook and strategic initiatives position it to navigate the evolving landscape of the software industry and capitalise on AI-driven advancements.