Core Insights - The current software sector pullback is driven by a debate over long-term value and whether AI will erode existing profit pools and competitive advantages [1][2] - Goldman Sachs analysts have identified seven bearish arguments regarding software companies, assessing their risks and potential impacts on various segments [1][2] Group 1: Market Concerns - The focus has shifted from short-term growth to concerns about whether AI will diminish software companies' competitive moats [2] - The report categorizes bearish arguments into a structured analysis, assigning risk scores to each argument to evaluate what can sustain long-term value [2] Group 2: System of Record (SoR) Risks - The risk of SoR being replaced is considered low (risk score 1), as generative AI is more suited for analysis rather than transactional processes [3] - However, there is a potential risk of value migrating from SoR to an "agentic operating system/orchestration layer" (risk score 4), which could weaken traditional competitive advantages [5] Group 3: Data Boundaries and Value Migration - If companies keep their data advantages confined within existing applications, the stability of SoR will be maintained, but profit pools may be siphoned off by new layers [4] - The orchestration layer could become more valuable as it enables cross-system reasoning and workflow automation, potentially undermining the traditional user interface and process dependencies of SoR [5] Group 4: Vertical vs. Horizontal Software - Vertical software is currently more resilient but may face challenges from horizontal platforms that allow users to create industry workflows using AI tools (risk score 2) [6] - The report highlights that established vertical software companies have significant barriers to entry due to proprietary data and deep integration into workflows [6] Group 5: Development Costs and Competition - The decline in coding costs due to AI tools will lead to increased competition, but the risk is rated as moderate (risk score 2) since software engineering involves more than just coding [8] - Efficiency gains from AI tools may shift bottlenecks to new areas, particularly in enterprise-level delivery where security and integration remain critical [8] Group 6: Customization Trends - Companies may increasingly prefer to build custom solutions, particularly in scenarios where existing software does not meet their needs (risk score 3) [9] - Palantir is cited as an example of a company successfully leveraging customization to create quantifiable ROI for clients [9] Group 7: Profit Margin Pressures - The industry is expected to experience moderate margin pressures over the next 12-24 months as companies absorb costs related to AI adoption [12] - The shift towards consumption-based pricing models may alter traditional SaaS economics, with some AI-native companies reporting lower margins compared to established SaaS firms [12] Group 8: Technological Uncertainty - The rapid pace of technological advancement presents the highest risk, making it difficult to predict long-term outcomes (risk score 5) [13] - The report notes that the unpredictability of technology evolution can lead to lower valuation multiples due to increased uncertainty [14] Group 9: Stability Signals - Key signals to watch for stability include whether software companies can demonstrate that domain expertise leads to higher quality outcomes and whether financial fundamentals can stabilize or improve [15]

Core Insights - Enterprises migrating to SAP S/4HANA are prioritizing short-term stability over long-term transformation, which may hinder their ability to leverage automation, analytics, and AI effectively [1] - A significant disconnect exists between companies' transformation ambitions and their actual adoption practices of S/4HANA, with fewer than 20% re-implementing SAP processes and technology during migration [1] - Nearly 49% of organizations perform little or no re-engineering, opting to maintain legacy processes and data, which can limit future operational gains [1] Migration Challenges - Many enterprises face cost overruns and missed deadlines during S/4HANA transitions, with nearly 60% of migrations reported as behind schedule and over budget due to underestimated complexity and internal capacity constraints [1] - Weak governance is often the primary cause of delays, rather than technical challenges, indicating deeper systemic issues within migration programs [1] - Fragmented accountability and misaligned incentives among multiple systems integrators and service providers contribute to scope creep and delays in migration projects [1] Strategic Recommendations - To unlock the full potential of automation, analytics, and AI, enterprises must commit to fundamental changes in governance, data quality, and process standardization during their SAP migrations [1] - Companies should avoid sequencing transitions solely around maintenance deadlines and instead focus on strategic transformation to enhance their future competitiveness [1] - Establishing strong governance and clear decision rights is essential for effective management of SAP migration projects, ensuring accountability and oversight of critical activities [1]

Core Insights - SAP achieved its best bookings result in Q4, with lower churn and stable discounting, indicating a successful quarter amidst ongoing transformation efforts [1][3] - The company met its 2025 outlook for cloud and software despite challenges in the first half of the year, attributing strong performance to cost discipline and AI integration [2][3] Financial Performance - Cloud revenue increased by 26%, with the Cloud ERP Suite growing by 32%, contributing to a full-year non-IFRS operating profit of €10.4 billion [4][16] - Total cloud backlog reached a record €77 billion, up 30%, while current cloud backlog grew by 25%, reflecting a shift towards larger public-sector deals [5][16] - Free cash flow for 2025 was approximately €8.2 billion, with a new €10 billion share repurchase program announced [15][17] AI and Product Strategy - AI is driving significant deal momentum, with over two-thirds of Q4 cloud orders including Business AI, and 90% of the largest deals incorporating AI or SAP Business Data Cloud [6][11] - The Business Data Cloud generated over €2 billion in order entry since its launch, emphasizing its strategic importance for integrating SAP and non-SAP data [9] - SAP's product strategy focuses on a unified platform for business transformation, enhancing user experience and embedding AI into core workflows [10][12] Market Position and Growth - The mid-market segment is now the fastest-growing area for SAP, with several thousand new customers acquired in recent years [7] - SAP's public cloud business grew five times faster than its private cloud business in 2025, indicating strong market demand [7] - The company expects to accelerate total revenue growth and achieve record free cash flow of approximately €10 billion in 2026 [17] Geopolitical and Market Considerations - SAP's performance in the U.S. public sector remained strong, with customers focusing on regulatory compliance rather than vendor origin [18] - Management acknowledged the impact of geopolitical tensions on deal closures but remains optimistic about future growth [2][18]

Core Insights - Kyndryl has launched the SAP Transformations Center of Excellence (CoE) to help customers leverage AI for SAP transformations [1][4] - The CoE is staffed by over 500 Kyndryl professionals who utilize the Kyndryl Agentic AI Framework to enhance SAP modernization efforts [2][4] - Kyndryl's collaboration with Nova Intelligence aims to simplify the transition from SAP ECC to SAP S/4HANA, achieving 100% Clean Core compliance and reducing project duration and labor [3][6] Company Overview - Kyndryl is a leading provider of mission-critical enterprise technology services, operating in over 60 countries and recognized as the world's largest IT infrastructure services provider [5] - The company offers advisory, implementation, and managed service capabilities to thousands of customers, focusing on designing, building, managing, and modernizing complex information systems [5] Strategic Partnerships - Kyndryl's SAP CoE builds on its strategic partnership with SAP and has been recognized as a global RISE with SAP delivery partner [4] - The company is expanding its SAP partnership to provide SAP S/4HANA Cloud Private Edition services, facilitating cloud migration and modernization of SAP environments [6]

Core Viewpoint - BNP Paribas Exane has cut the price target for ServiceNow to $120 from $186, indicating a moderate downside, while maintaining a "Neutral" rating despite describing the company as "resilient" [1] Company Overview - ServiceNow is a leading provider of cloud-based digital workflow solutions, operating the ServiceNow AI Platform that integrates with various cloud models and data sources [2] - The company serves over 85% of the Fortune 500 and nearly 60% of the Global 2000, with a market capitalization of $138.1 billion [2] Financial Performance - ServiceNow reported third-quarter total revenue of $3.41 billion, a 21.8% year-over-year increase, surpassing Wall Street expectations by $50 million [6] - Subscription revenue accounted for $3.3 billion, reflecting a 21.5% increase from the previous year, driven by new and existing customer purchases [6] - The company's current remaining performance obligations (cRPO) reached $11.35 billion, representing a 21% year-over-year growth [7] - ServiceNow raised its full-year guidance for subscription revenue to $12.84 billion to $12.85 billion, up from a previous forecast of $12.78 billion to $12.8 billion [8] Market Sentiment and Analyst Ratings - Despite concerns about AI disruption, many analysts maintain a positive outlook on ServiceNow, with 33 out of 42 analysts recommending a "Strong Buy" [11] - The average price target for ServiceNow stock is $212.88, suggesting a 59.9% upside potential from its recent closing price [11] Upcoming Expectations - Analysts expect ServiceNow's Q4 results to show a 23.08% year-over-year increase in GAAP EPS to $0.48 and a 19.35% year-over-year revenue increase to $3.53 billion [9] - The recent decline in ServiceNow shares has made its valuation more attractive, with a forward non-GAAP P/E of 38.25x, significantly lower than its five-year average of 67.56x [10]

Core Insights - Kyndryl has introduced a new Clean Field approach that utilizes agentic AI to enhance the efficiency and effectiveness of SAP transformations for customers, particularly in migrating from SAP ECC to SAP S/4HANA [1][2][3] Group 1: Clean Field Approach - The Clean Field approach aims to create a robust digital foundation for customers, making their SAP migration process more adaptive and versatile to meet future business needs [1][2] - This approach allows for a clean core migration of data, processes, and systems, simplifying the SAP ERP upgrade while promoting a modular and adaptive system architecture [2][3] Group 2: Benefits of the Approach - Kyndryl's Clean Field approach, combined with deep SAP expertise and agentic AI, provides a faster and more disciplined path to SAP S/4HANA, reducing technical debt and manual effort while accelerating outcomes [3] - The approach is designed to be customizable to align with each customer's unique business goals, enhancing the overall modernization process [3] Group 3: Strategic Alliances and AI Integration - Kyndryl has a long-standing strategic alliance with SAP and has been recognized as a global RISE with SAP delivery partner, leveraging AI to support customers in their SAP transformation initiatives [4] - The integration of AI-driven services across various SAP solutions is aimed at accelerating customer adoption and optimization of SAP transformations [4][6]

Core Insights - Nestlé's core processes are standardized on a global SAP template, facilitating technology testing and implementation across various markets [1][2] - The company employs AI to enhance sales recommendations for smaller retail clients, leading to increased order placements [3] - A generative AI assistant is being piloted to create fulfillment plans, improving efficiency and effectiveness in order processing [4] Technology and Data Integration - Nestlé's data foundation connects across the value chain, enabling better decision-making and operational efficiency [6] - AI is utilized for pricing analytics, allowing the company to develop more accurate pricing models by considering the entire market landscape [7] - The recent upgrade to SAP S/4HANA spans 112 countries, enhancing core processes and opening up new use cases for generative AI [9] Operational Efficiency and Workforce Impact - The company plans to lay off over 16,000 employees as part of a cost-cutting strategy, with a focus on white-collar roles [10] - AI is seen as a factor in operational efficiency but not the sole reason for workforce reductions; the emphasis is on reshaping roles rather than eliminating them [11] - The introduction of AI tools, such as a virtual sales assistant, aims to optimize time spent with customers rather than simply reducing headcount [12]

Core Insights - BeMind by BearingPoint represents a transformative approach to SAP projects, integrating AI with human expertise to enhance productivity and quality [1][3][9] Company Overview - BearingPoint is an independent management and technology consultancy with a focus on transforming businesses through intelligent technology solutions [10][11] - The firm operates across three main units: Consulting, Products, and Capital, providing a range of services including business and technology consulting [10] Product Features - BeMind is an AI-powered platform designed to streamline SAP transformation processes, developed over 18 months, and tested in over 20 real-world projects [2][4] - The platform achieves productivity gains of 20 to 30 percent, significantly reducing project timelines while improving deliverable quality [4][6] Impact on SAP Transformations - BeMind automates manual tasks, allowing project teams to focus on higher-value activities, thus compressing project timelines and enhancing overall efficiency [7][8] - The platform enforces quality assurance through integrated mechanisms, ensuring consistency and accuracy in project deliverables [8] Strategic Importance - By merging AI capabilities with human expertise, BeMind sets a new benchmark for delivering value in SAP transformations, making processes faster, smarter, and more reliable [9]

Core Insights - Lexin Solutions has launched its MiLi solution on SAP Store, integrating with SAP S/4HANA via SAP Business Technology Platform Integration Suite to enhance indirect materials management [2][11] - The MiLi platform provides real-time supply chain intelligence, inventory optimization, and improved data integrity for organizations in asset-intensive sectors [1][4] Company Overview - Lexin Solutions, founded in 2022 and headquartered in Brisbane, aims to eliminate operational inefficiencies in heavy industries through its MiLi platform, which offers end-to-end visibility and control over indirect materials [13] - The company is a partner in the SAP PartnerEdge program, which supports partners in developing innovative applications [12] Product Features - MiLi features a modular architecture, allowing businesses to scale at their own pace and select functionalities relevant to their operations [6] - The platform standardizes material master data, optimizes inventory, and enables quick searches for parts, vendors, or work orders [7] - Role-based workflows and real-time dashboards enhance user experience and decision-making capabilities [8] Implementation and ROI - A baseline connection to SAP S/4HANA can be established within 2-4 hours, with customers typically breaking even within six months post-implementation [9] - Lexin Solutions offers a MiLi Lite Pilot to simulate live operations, with a guarantee of at least 10x savings on pilot costs or the service is free [10]

Core Insights - Nestlé is implementing a more AI-focused ERP system to enhance order fulfillment and align supply with demand in real time for both in-store and online retailers [3][4] - The company plans to reduce costs by cutting 16,000 jobs, which represents 6% of its global workforce, with a significant portion of cuts affecting corporate roles [4] - The upgrade involves transitioning from the legacy SAP ECC system to SAP S/4HANA, with the first phase already completed across 112 countries and 50,000 employees [5][8] Company Strategy - The CEO of Nestlé indicated that the company has not been efficient historically and aims to improve decision-making through increased digitization and automation [4] - The deployment of the new ERP system is expected to provide more flexibility, capabilities, and insights, facilitating faster global product rollouts to meet customer needs [8] Technological Transition - Nestlé migrated its entire SAP ERP to the SAP Private Cloud in 2022, with plans to complete the S/4HANA installation over the next two years [5][8] - The new system will incorporate SAP's AI-powered assistant to enhance procurement, supply chain management, and order fulfillment efficiency [8]