AI demand boost, SAP's cloud revenue surged 25% in the second quarter, rising more than 5% after hours | Financial Report Insights

The financial report shows that driven by the demand for artificial intelligence (AI) boom, the cloud business revenue of SAP, the largest software company in Europe and the software giant in Germany, surged by double digits in the second quarter, reflecting the growth in service demand for running AI applications, prompting more customers to subscribe to SAP's software.

After the financial report was released, SAP's US stocks listed on the NYSE accelerated after-hours trading, rising by more than 5% at one point. If the upward trend continues after the opening on Tuesday, it will mark a consecutive two-day rebound from the closing low since June 25th. Year-to-date, as of the close on Monday, SAP's US stocks have accumulated nearly 30% in gains.

On Monday after the US stock market closed, SAP announced its second-quarter financial report ending in June this year. The total revenue for the quarter under non-IFRS standards was 8.288 billion euros, a 10% year-on-year increase, higher than analysts' expectations of 8.26 billion euros. Under the same standards, the company's gross profit was 6.029 billion euros, an 11% increase, operating profit increased by 33% to 1.222 billion euros, and earnings per share (EPS) increased by 59% to 1.10 euros.

By business segment, under non-IFRS standards, SAP's cloud revenue in the second quarter was 4.153 billion euros, a 25% year-on-year increase, slightly lower than analysts' expectations of 4.16 billion euros. The revenue of SAP's largest business, cloud and software, was 7.175 billion euros, a 10% year-on-year increase, also lower than analysts' expectations of 7.19 billion euros.

SAP pointed out that the cloud revenue in the second quarter was supported by cloud ERP suite sales, with cloud ERP suite revenue growing by 33% to 3.414 billion euros.

The financial report shows that due to SAP's continued success in winning new business, the backlog of orders for cloud business is 14.8 billion euros, a 28% increase.

In terms of guidance, SAP reiterated its expectations for 2024, this year, and slightly raised its expectations for 2025. SAP currently expects an operating profit of approximately 10.2 billion euros under non-IRFS standards for 2025, up from the previous expectation of 10 billion euros. SAP stated that the upward adjustment of the 2025 guidance is to reflect the expected incremental efficiency gains from the expanded transformation plan.

Christian Klein, CEO of SAP, stated in the declaration of the financial report data that the growth momentum of SAP's cloud business in the second quarter remains strong, and commercial AI has facilitated many transactions. SAP continues to rigorously implement its transformation, thereby raising the operating profit target for 2025, while continuing to invest in transformation to become a leader in the field of commercial AI. Given SAP's progress and strong product line, the company is confident in achieving accelerated revenue growth sustained until 2027 Comments suggest that the current AI boom is mainly benefiting hardware and chip companies, with SAP's peers including Salesforce Inc. and Workday Inc. providing disappointing performance guidance this year. SAP is pushing customers to shift from software license authorization models to cloud subscription models, thus shielding SAP from the softness in the software industry. By bundling cloud services with AI tools to incentivize customer transformation, SAP is promoting its cloud business, which in turn increases the average spending of each customer on its cloud services.

SAP is focusing on AI as a key growth area while actively "trimming down." In January of this year, SAP announced a restructuring plan that will affect 8,000 positions within the company. Recent data shows that the restructuring will impact more positions than initially planned, reaching between 9,000 and 10,000 roles. SAP stated that the restructuring costs for the first half of the year amounted to 2.9 billion euros, with total expenses related to the plan estimated at around 3 billion euros, compared to the initial estimate of about 2 billion euros