Have you looked at your portfolio lately? If you’re invested in software companies, the past few weeks probably felt like riding a roller coaster—straight down. The entire sector has been under intense pressure, with share prices tumbling as investors panic over one big question: will generative AI eventually make traditional software obsolete? It’s a scary thought, and the market has reacted accordingly, selling off names that once seemed unstoppable.
Yet amid all this fear, a few clear-headed voices are starting to push back. They argue that not all software companies face the same level of threat. Some are actually positioned to benefit from AI rather than be destroyed by it. And right now, one name stands out as particularly mispriced: SAP. In my view, the current weakness creates one of those rare moments where patience and conviction can pay off handsomely.
The Brutal Reality of the Software Sell-Off
Let’s not sugarcoat it—the software group is in real pain. Many names have dropped 20-30% in recent months, and the bleeding accelerated recently. Investors are dumping shares on concern that generative AI tools will automate tasks currently handled by expensive enterprise software suites. Why pay hefty subscription fees when an AI agent can handle data processing, reporting, or even basic decision-making?
This narrative has taken hold fast. Every time a new AI breakthrough hits the headlines, software stocks feel the sting. It’s created a feedback loop: fear drives selling, which depresses valuations, which feeds more fear. But markets have a habit of overshooting, especially when a powerful new technology arrives on the scene.
Why AI Sparks So Much Fear in Software
Generative AI represents a genuine paradigm shift. We’ve seen it rewrite rules in content creation, customer service, and even coding. Now the spotlight is turning to enterprise software—the complex, mission-critical systems that run global businesses. If AI can replicate or improve upon these functions at a fraction of the cost, entire business models could be at risk.
Some segments clearly face more danger than others. Simple, commoditized tools with low switching costs are most vulnerable. New entrants can train models on public data and offer similar functionality without years of development. That’s a scary proposition for companies relying on recurring revenue from those kinds of products.
The pace of AI development has surprised even the optimists. What seemed like a distant threat just months ago now feels uncomfortably close.
– Technology investment analyst
Yet here’s the key point I keep coming back to: software companies are not all created equal. Those with deep domain expertise, massive proprietary datasets, and sticky integrations into core business processes have a much stronger defense. New AI entrants simply can’t replicate decades of accumulated knowledge and customer-specific customization overnight.
SAP’s Moat: Deeper Than Most Realize
SAP isn’t just another software vendor—it’s the backbone for many of the world’s largest enterprises. Its platforms manage everything from supply chains to financials to human resources in highly complex, regulated environments. Replacing such a system isn’t like swapping out a project management tool; it’s more like performing open-heart surgery while the patient is running a marathon.
The company’s real advantage lies in its proprietary customer data. Every implementation creates a unique dataset reflecting that organization’s specific processes, compliance requirements, and historical patterns. General-purpose large language models simply don’t have access to this information. SAP, however, can use it to train specialized AI agents that deliver far more accurate, context-aware results.
- Decades of domain-specific knowledge embedded in its platforms
- Extremely high switching costs for mission-critical deployments
- Proprietary datasets that general AI models cannot replicate
- Ongoing cloud migration still in early-to-mid stages
- Strategic focus on integrating generative AI into core products
These factors create a protective moat that’s hard to breach. Sure, AI will change how some tasks get done, but SAP is actively embedding generative capabilities into its ecosystem rather than fighting against the trend. That’s a crucial distinction.
The Numbers Tell a Different Story
When you dig into the current valuation, it becomes clear the market is pricing in an extremely pessimistic outcome. Assuming analysts’ existing forecasts hold—no major changes to revenue or profit trajectories—the share price today implies negative growth in the long term. That would require massive customer churn and a complete halt to cloud migrations, both of which seem unlikely.
The cloud transition alone still has significant runway. Many organizations remain only partially migrated from on-premise systems. That process drives recurring revenue for years to come. Add in the efficiency gains and new revenue streams from AI-enhanced features, and the picture looks far more constructive than current prices suggest.
| Metric | Current Implied | Analyst Forecast |
| Long-term Revenue CAGR | Negative | ~11% |
| EBIT Growth | Significant Decline | ~15% |
| Cloud Migration Progress | Assumed Complete | Less than halfway |
These gaps highlight just how pessimistic sentiment has become. Markets often swing too far in both directions—right now, fear dominates.
Why This Dip Feels Different
I’ve watched tech cycles for a long time, and this moment reminds me of previous inflection points. When cloud computing first gained traction, on-premise software vendors faced similar doomsday predictions. Many struggled, but the strongest adapted and emerged even more dominant. I suspect we’re seeing a similar dynamic play out with AI.
The companies best positioned aren’t those trying to outrun AI—they’re the ones harnessing it. SAP has made business AI central to its strategy, both to drive new revenue and improve internal efficiency. That’s exactly the approach that turns disruption into opportunity.
Is there risk? Of course. No one can predict exactly how fast AI capabilities will advance or how customers will respond. But the current share price seems to bake in an almost apocalyptic scenario, leaving little room for anything better than disaster. That asymmetry creates the potential for significant upside if even moderate growth continues.
Investor Psychology and Market Overreactions
Markets are emotional beasts. When a compelling narrative takes hold—like “AI will kill software”—it can drive valuations to extremes. We’ve seen it before with dot-com bubble, crypto mania, and even earlier AI winters. The pendulum rarely stops at fair value; it swings hard.
Right now, the narrative is so dominant that nuance gets lost. Investors hear “AI disruption” and sell first, ask questions later. But successful investing often means going against the crowd when the crowd is panicking. That’s uncomfortable, but historically rewarding.
The time of maximum pessimism is often the best time to buy great businesses.
– Experienced market observer
Perhaps that’s where we stand with SAP. The business fundamentals haven’t collapsed, but the stock price has reacted as though they might. That disconnect creates opportunity for those willing to look past the headlines.
What Could Go Right (and Wrong)
Let’s be balanced. On the upside, SAP could see accelerated adoption of its AI-enhanced offerings. Customers already trust the platform; adding powerful generative tools could increase stickiness and open new revenue streams. Cost savings from internal AI use could also boost margins over time.
- Successful embedding of AI into core products drives higher customer lifetime value
- Continued cloud migration provides multi-year revenue visibility
- Proprietary data advantage maintains competitive moat
- Market sentiment eventually normalizes, leading to valuation recovery
On the downside, if AI advances far faster than expected and general models become surprisingly capable in enterprise contexts, some pressure could emerge. Churn could rise slightly, or new competitors could nibble at market share. But even in that scenario, the current price seems to discount a much worse outcome.
The Long Game: Patience Pays
Investing in quality businesses during periods of market stress rarely feels good in the moment. Your screen turns red, headlines scream disaster, and doubt creeps in. But great companies tend to survive technological shifts and often emerge stronger.
SAP has done it before—through multiple tech revolutions—and I believe it has the ingredients to do it again. Deep domain expertise, sticky customer relationships, and a proactive AI strategy position it well. The current sell-off may prove to be one of those classic overreactions that creates generational buying opportunities.
Of course, nothing is guaranteed. Markets can stay irrational longer than most investors can stay solvent. But when a high-quality company trades at a depressed valuation due to broad sector fear rather than company-specific failure, history suggests patience often wins.
So while the software sector continues to grapple with AI’s implications, one name stands apart. SAP isn’t running from the future—it’s building it. And right now, the price doesn’t seem to reflect that reality. In a market full of fear, that makes it worth a closer look.
The views expressed here are for informational purposes only and shouldn’t be considered investment advice. Always do your own research and consider your personal financial situation before making decisions.
