SAP share price weakness seen as ’unjustified’

Investing.com -- European software stocks fell sharply on Tuesday amid what Barclays described as “a sudden focus on the potential negative and disruptive impact of AI on software.”

SAP shares dropped 7%, while Nemetschek and Sage fell 11.1% and 4.7% respectively, even as the Stoxx Europe 600 index gained 0.2%.

Barclays said the sell-off “initially felt like a narrative gaining traction on a quieter summer day without much legs” but ended up having “a meaningful impact on share prices.”

The bank noted that headlines offered “limited details” on what had materially changed in the AI threat to software since last week.

The analysts said they “continue to see our coverage by and large, and in particular SAP, as a beneficiary of AI and therefore see the share price weakness as unjustified.”

Barclays outlined common bearish arguments, from AI lowering barriers to entry and replacing workflows, to disintermediation by chatbots, shrinking addressable markets, and budget diversion toward AI, but stressed that each has counterpoints.

For example, while AI could make coding cheaper for new entrants, incumbents “equally benefit” and retain advantages in complex software, regulatory barriers, and customer relationships.

Similarly, while generative AI could replace simple tools, Barclays said most solutions in its coverage are “complex, benefit from regulatory barriers, and there is a high cost of errors.”

On budgets, the bank viewed any trade-off between AI and traditional software spending as cyclical, not structural: “If corporates are able to drive efficiencies, they will spend on technologies that facilitate this, whether this is through AI or general software spend.”

Barclays reiterated its constructive stance on SAP and warned that if the AI-risk narrative persists, it could “continue to have a negative impact on valuations.”

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