Strong demand for cloud solutions, particularly at SAP, is driving positive results across the sector
Trade
European software companies are beating expectations this earnings season, demonstrating resilience despite worries over AI and the impact of the conflict with Iran on business confidence.
SAP, Europe’s largest software company, outperformed analysts’ forecasts, driven by strong demand for its cloud solutions. This positive performance eases concerns about disruption from AI and possible deal delays caused by geopolitical tensions. By contrast, US rival ServiceNow recently warned investors about postponed deals as a result of the Iran war, highlighting the diverging fortunes of these industry giants.
SAP’s robust results triggered a significant rebound in the share price after months of decline, indicating that the company is capable of weathering challenging market conditions. Analysts welcomed the news as “a welcome relief” and pointed to the revival of growth in the cloud order backlog and rising demand for cloud-based enterprise management products.
Positive results across the sector
Alongside SAP, other European software companies are also reporting positive results. Capgemini, a consultancy specialising in digital transformation, beat expectations with strong organic revenue growth in key regions, while Nemetschek, a supplier of software for the construction and media industries, reported impressive first-quarter revenue growth.
Dassault Systèmes, a French provider of 3D simulation software, defied predictions of disruption by beating analysts’ estimates on most indicators. The share price jumped as analysts praised the company’s resilience in a challenging macroeconomic environment. Experts attribute this success to the specialised nature of Dassault’s software, which requires engineering and physics expertise and relies on unique datasets, limiting its vulnerability to being replaced by AI.
Swedish visualisation technology company Hexagon and Swiss banking software provider Temenos also outperformed expectations, further underlining the positive trend within the European software sector.
Despite the upbeat outlook, a degree of caution remains. Analysts point to mounting pressure on companies such as Dassault Systèmes to deliver strong results for the rest of the year due to tougher comparatives and an uncertain economic climate. Moreover, concerns persist about overall sentiment and potential risks for the software sector as a whole, even though SAP’s performance has boosted confidence.
Although earnings-per-share growth for Europe’s software giants is still expected to slow this year, the recent run of positive surprises points to the need for a more nuanced analysis. Analysts predict a shift in the AI narrative away from broad sector trends towards a deeper understanding of the strengths and differentiating factors of individual companies.
Business AM