SAP SE (NYSE:SAP) is one of the AI Stocks Every Investor Should Watch. On September 22, BofA Securities analyst Frederic Boulan lowered the price target on the stock to EUR316.00 (from EUR320.00) while maintaining a Buy rating. Despite shares underperforming the  SX8P by 5pp since Q2 earnings in July, the firm has reiterated SAP as a large cap top pick. The firm believes that SAP’s long-term growth is structural and durable. SAP’s structural growth is seen driven by both software upgrade and infrastructu ...

This story was originally published on CIO Dive. To receive daily news and insights, subscribe to our free daily CIO Dive newsletter. Dive Brief:  SAP faces a formal investigation from the European Commission over concerns the company’s provision of support and maintenance services for its ERP software might have affected market competition. The commission, the European Union’s executive branch, launched its investigation Wednesday.  SAP provides ERP software to businesses for managing finances, projects ...

Core Insights - Oracle Corp (NYSE:ORCL) is highlighted as a potential winner in the upcoming product and service boom, as noted by finance professor Aswath Damodaran [2] - The company's recent quarterly results indicate a strong performance, with expectations for booked revenue to exceed $0.5 trillion [3] - Oracle's competitive advantages include a strong market position in enterprise databases and ERP software, a large and experienced sales force, and high customer retention rates [4] Financial Performance - Oracle's quarterly results surpassed management guidance and consensus expectations, particularly in remaining performance obligation (RPO) bookings [4] - The company anticipates at least 16% revenue growth in its 2026 fiscal year, driven by cloud growth exceeding 40% [4] - The transition to a cloud computing subscription-based model is expected to lead to faster growth over time due to higher customer lifetime value [4] Market Position - Oracle is recognized as a leader in the enterprise software market, particularly in database, infrastructure, and application software [4] - The company maintains a durable moat through high switching costs for clients, achieving renewal and retention rates in the mid-90% range [4] - The shift to cloud-based solutions positions Oracle well to benefit from the ongoing growth in data storage and enterprise application software [4]

Core Viewpoint - German software company SAP is taking steps to address antitrust concerns raised by the European Union regarding its ERP software, aiming to avoid potential investigations and fines [1][3]. Group 1: Regulatory Concerns - Regulatory scrutiny on SAP has increased due to complaints about application bundling, which some customers argue leads to inflated costs [2]. - SAP has reportedly submitted proposals to the EU to mitigate these regulatory concerns, although specific details of the concessions have not been disclosed [2]. Group 2: Potential Consequences - Successfully addressing the EU's antitrust issues could help SAP avoid an investigation and fines that could reach up to 10% of its annual global revenue [3]. - The European Commission previously distributed a questionnaire in 2022 to gather insights on ERP support services from SAP and Oracle, focusing on the ease of switching providers and potential competitive barriers [3][4]. Group 3: Proposed Remedies - Proposed remedies from SAP may include increased flexibility in service contracts and simplifying the transition process to competitor services [4].

Group 1: AI Companies and Market Trends - Investors are increasingly investing in AI companies, with valuations of the "Magnificent Seven" private market companies reaching $1.2 trillion, nearly doubling over the past year [2][3] - The combined value of these AI companies has quadrupled from $264 billion since late 2022, highlighting AI's significant impact on private market performance [3] Group 2: Stock Recommendations and Hedge Fund Sentiment - Agnico Eagle Mines Ltd (NYSE:AEM) is highlighted as a top gold stock, with a year-to-date increase of over 100% and an average dividend increase of 25% per year over the past five years [6][8] - Axon Enterprise Inc (NASDAQ:AXON) is recommended as a strong non-tech stock, with a growth rate of approximately 30% and a significant market presence in public safety products [9] - American Express Co (NYSE:AXP) is noted for its strong performance, with revenues up 8% at constant currency and a focus on capturing younger consumers, who now account for 35% of total US consumer spending [10] - Oracle Corp (NYSE:ORCL) is positioned well in the enterprise software market, expecting at least 16% revenue growth in its 2026 fiscal year, driven by cloud growth exceeding 40% [12][14] - Advanced Micro Devices Inc (NASDAQ:AMD) is expected to gain market share in AI applications by 2027, with significant revenue and profit growth anticipated [17] Group 3: Company-Specific Challenges - Tesla Inc (NASDAQ:TSLA) faces declining global sales, with a 14% year-over-year drop in the second quarter, and a decrease in market share in California from 60.1% in 2023 to 52.5% in 2024 [18][19]

Summary of Key Takeaways from the Conference Call on China's Software and Data Center Industry Industry Overview - The conference focused on the software and data center industry in China, highlighting the significant role of AI as a growth driver for the sector [1][2]. Core Insights 1. **AI as a Growth Driver**: AI is identified as the key growth driver for software companies, with notable progress in AI monetization and increasing AI-related contract values [1][2]. 2. **Operational Efficiency**: Deployment of AI agents and coding is enhancing operational efficiency for software companies [1]. 3. **Subscription Revenue**: Companies with a higher share of subscription revenue, such as Kingdee and Meitu, are showing better growth visibility [1][2]. 4. **Data Center Demand**: There is strong demand for data centers driven by AI, with positive developments in domestic AI chip production to support order visibility [1]. 5. **Public Cloud Growth**: The AI-driven public cloud business is experiencing strong growth momentum [1]. Financial Performance 1. **2Q25 Results**: Software companies reported mostly in-line results for 2Q25, with 1 beat, 12 in-line, and 3 misses. Companies with solid downstream demand and higher recurring revenue performed better [3]. 2. **Data Center Performance**: Companies like VNET, GDS, and Kingsoft Cloud exceeded expectations due to strong AI demand [3]. Market Data 1. **Revenue Growth**: The revenue of China's software and IT services industry grew by 12.3% YoY to Rmb8.32 trillion in the first seven months of 2025, with net profit increasing by 12.4% YoY to Rmb1.09 trillion [4]. 2. **Sector Performance**: In July 2025, the sector's revenue growth accelerated to 14.6% YoY, and net profit growth reached 13.9% YoY [4]. Investment Recommendations 1. **Top Picks**: The preferred companies in the software sector include Kingdee and Meitu for their solid growth and improving profitability. In the data center/public cloud space, VNET, GDS, and Kingsoft Cloud are favored for their strong growth driven by AI [2][9]. 2. **Price Objective Changes**: Price objectives for several companies were revised, reflecting changes in market conditions and company performance [7][11]. Employee Trends - The total number of employees in software companies under coverage declined by an average of 5% in 1H25 compared to FY24, indicating potential cost-cutting measures [13]. Margin Trends - There is an observed improvement in profitability across software and data center companies, with gross profit margins (GPM) and net profit margins (NPM) showing positive trends [14]. Conclusion The conference highlighted the robust growth potential of the software and data center industry in China, driven primarily by AI advancements. Companies with strong subscription models and operational efficiencies are positioned favorably for future growth. The overall financial performance indicates a healthy demand environment, although some segments, particularly cybersecurity, are facing challenges.

Core Insights - Oracle Corp (NYSE:ORCL) shares surged following the announcement of its latest quarterly results, with expectations for booked revenue to exceed $0.5 trillion [2] - The company maintains a strong competitive position in enterprise databases and ERP software, catering to large clients such as banks and hospitals [2] - Oracle differentiates itself by providing cost-effective cloud services while integrating SaaS, ERP, and HCM, which creates high switching costs and a durable competitive advantage [2] Industry Context - The demand for computing resources is driving growth for companies like Oracle, as highlighted by industry experts [3] - There is a significant infrastructure boom, yet a capacity constraint exists, leading to a shortage of compute cycles to meet global demand [4] - The booming business of hyperscalers, including Oracle, is indicative of the increasing demand for computational resources in the market [4] Competitive Advantages - Oracle is recognized as a leader in the enterprise software market, with a strong position in database, infrastructure, application software, and cloud services [5] - The company benefits from a large and experienced direct sales force, a founder-driven management team, and a robust intellectual property portfolio [5] - High client retention rates in the mid-90% range and significant switching costs contribute to Oracle's competitive edge in the market [5]

Company Overview - QXO, Inc. is a transformative player in the building products distribution sector, focusing on roofing, waterproofing, and complementary products, operating in an $800 billion addressable market [2] - The company combines an extensive branch network with digital platforms for streamlined ordering and delivery, while offering value-added services like ERP software and inventory management to create recurring revenue opportunities [2] Strategic Goals - QXO has set a long-term target of achieving $50 billion in annual revenue within the next decade, supported by accretive acquisitions, including the $11 billion purchase of Beacon Roofing Supply in 2025 [3] - The company is investing heavily in technology, including AI-driven pricing and logistics tools, to enhance efficiency and customer experience while pursuing geographic expansion across North America [3] Leadership and Management - QXO benefits from experienced leadership, including founder Brad Jacobs, whose previous ventures delivered over 30,000% returns to investors over 30 years [4] - The senior management team possesses deep institutional knowledge, positioning QXO to capture significant opportunities in a fragmented sector [4] Market Performance - Since the previous coverage in April 2025, QXO's stock price has appreciated approximately 72%, reflecting the company's execution on digital enablement and expansion [5] - The bullish perspective on QXO emphasizes its technology-enabled operations, recurring revenue streams, and seasoned management as compelling investment factors [4][5]

Summary of China Software 2Q25 Conference Call Industry Overview - The conference call focused on the **China Software** industry, particularly the performance of various software companies in the second quarter of 2025 (2Q25) and the first half of 2025 (1H25) - Average revenue growth for the covered companies was **9% YoY** in 1H25, with an average net margin of **-3%** due to weak seasonality in the first half [1][2] Key Company Performances - **Kingsoft Office, Thundersoft, and Sensetime** reported revenues in 2Q25 that exceeded expectations due to increased AI spending - **Glodon and Sangfor** showed better-than-expected net income in 2Q25, attributed to improved employee productivity [1] - **Yonyou** reported a revenue growth of **7% YoY** in 2Q25, recovering from a **-21% YoY** decline in 1Q25, supported by small and medium business (SMB) growth [9] - **Thundersoft** experienced a **50% YoY** revenue increase, driven by strong growth in its AIoT business [26] - **Glodon** faced a **-5% YoY** revenue decline, but net margin improved to **13%** due to product mix upgrades and cost management [17] Core Insights and Trends - Companies are focusing on: 1. **Monetization of AI tools** to provide value-added features [2] 2. **Diversification** into overseas markets or new categories to counteract slower IT spending in certain segments [2] 3. **Integration of AI** with core software products to capture a larger share of clients' budgets [2] - The average **P/E ratio** for China software companies increased to **55x-60x**, indicating early signs of AI monetization, while the average **EV/Sales** ratio rose to **8x-9x** [2] Company Ratings and Recommendations - **Buy** ratings maintained for **Empyrean** and **Kingdee** - **Neutral** rating for **Yonyou** - **Sell** ratings for **ZWSOFT, Thundersoft, Glodon, and Sangfor** [3] Earnings Revisions - **Yonyou**: Revised down 2025 net loss to **Rmb594m** from **Rmb517m** due to lower revenues during transformation [12] - **Glodon**: Revenue estimates revised down by **1%-3%** for 2025-28E, but earnings revised up by **18%/12%/2%/1%** due to improved productivity [20] - **Thundersoft**: Revenue estimates revised up by **8%/5%/4%** for 2025-27E, reflecting higher revenues from the IoT business [30] - **Sangfor**: Revenue estimates revised down by **9%/2%/1%** for 2025-27E due to lower security software revenues [46] Other Important Insights - **ZWSOFT** launched new products with enhanced 3D CAD features, which are expected to support long-term growth despite current muted growth in 3D CAD software [39] - **Sangfor** is expanding its cloud computing product offerings, which is expected to contribute to revenue growth [45] - The overall sentiment in the industry is cautiously optimistic, with expectations of improved productivity and revenue growth driven by AI integration and new product offerings [1][2][3]

Investment Rating - The report provides a positive outlook for the global software industry, particularly in the ERP sector, with a growth forecast of 5.7% for ERP spending in 2025, consistent with 2024's rate [2][21]. Core Insights - AI is recognized as a significant driver for ERP modernization and consolidation, with 53% of respondents indicating that AI-related initiatives have accelerated their core financials upgrade timelines [2][55]. - The survey indicates a strong intention among organizations to upgrade their core financial systems, with 72% planning an upgrade within the next two years, despite a slight decrease from 76% in 2023 [2][49]. - The average age of core financial systems is decreasing, currently reported at 3.45 years, down from 3.94 years in the previous year, indicating ongoing modernization efforts [48][50]. Summary by Sections IT Budget Growth - The mean expectation for IT budget growth in 2025 is 5.4%, an increase from 4.8% in 2024, with ERP software and cloud growth slightly higher at 5.7% [7][22]. - China shows the strongest growth outlook at 7.1%, while Germany has the lowest at 3.6% [24]. AI Adoption and Impact - 56% of respondents reported that their core financials provider offers AI capabilities, with 66% of this group currently using these functionalities [3][59]. - The average cost increase per user due to AI adoption is reported at 14% for both core financials and HCM [3][66]. Vendor Landscape - Microsoft remains the most widely used vendor for core financials at 32%, followed by SAP at 25% and Oracle at 12% [12][35]. - The Net Promoter Score (NPS) for Microsoft is the highest among major vendors at 42, while SAP's NPS has declined to 15 [39][40]. Upgrade Plans - 26% of organizations plan to upgrade their core financial systems this year, with an additional 43% planning upgrades in 2026 [49][50]. - The report highlights that 61% of respondents believe their AI strategy has accelerated their ERP upgrade timelines, up from 51% in the previous survey [55][56]. Pricing Trends - 85% of respondents have experienced or been informed of planned price increases, averaging 6.2%, with the highest expected increase in China at 7.6% [19][70]. - Microsoft customers anticipate the highest price increase at 6.3%, while SAP customers expect the lowest at 5.6% [19][70].