There’s a trend with legacy software companies and their skyrocketing valuations: Companies founded in the age of the dinosaurs are booming, and this week was proof of that. Financial Statements‘s stock price exceeded $200 for the first time.
Founded in 1972, SAP is now valued at an all-time high of $234 billion. The Germany-based enterprise software provider was valued at $92 billion two years ago and $156 billion 12 months ago, meaning its market cap has increased by more than 50% in the past year alone.
While market valuation shouldn’t be confused with a company’s health, it is a useful indicator of how a company is doing, whether through actual financial performance or through meaningful moves to change with the times.
Old SAP
CEO Christian Klein will oversee a turnaround for SAP from 2020 onwards, help customers move to the cloud and Hyperscalers such as Google and NVIDIA In the middle.
SAP’s rapid growth can be attributed in part to a shift away from outdated licensing models. The company’s Q1 2024 report states: reveal Cloud revenue grew 24% year over year, a figure the company expects to grow further. More in the next 12 months This is due to “cloud backlog” revenue in the pipeline.Business AIThe company’s ‘ across its cloud suite has also contributed to this trajectory.
Last year, an on-premise customer Dissatisfied SAP New technologies introduced exclusively to cloud productsBut rather than pander, SAP is committed to driving the move to the cloud. Offering to on-premise customers discount Transition Think of it like sticking an AI carrot on a cloud stick.
Investment Management Company Ave Maria World Equity Fund Recently in the spotlight SAP was one of the top three performers in the first quarter of 2024, and noted that the company’s “transition from a perpetual license model to a SaaS model” will expand its total addressable market (TAM) and improve profit margins.
And it’s these efforts that are driving the fortunes of SAP and similar legacy software companies, according to Gartner’s chief forecaster. John David Lovelock.
“There are several tailwinds driving growth, including the preference for cloud over on-premise systems, upgrades and expansion requirements,” Lovelock told TechCrunch, “but the primary impact is just the continuation of the digital business transformation efforts that began in 2021.”
Hist Oracle
So what about Oracle, the American database and cloud infrastructure company founded in 1977? Oracle was valued at more than $385 billion as of this week, up 20% from last year, but that figure was nearly $400 billion a few weeks ago, far higher than its previous valuation.
The reasons are much the same as for SAP.AI-driven cloud growthThis is the result of a long transition away from an on-premise model.
In particular, Oracle’s Third Quarter Fiscal Year 2024 Revenue The company achieved a significant milestone when total cloud revenue (Software as a Service (SaaS) and Infrastructure as a Service (IaaS) combined) exceeded total license support revenue for the first time.
“We’ve Moved Ahead” – Oracle CEO Safra Catz stated in the financial results announcement.
the Fourth Quarter EarningsOracle reported modest revenue growth of 3% in 2018, but that figure rose to 20% for cloud-specific revenue, and Catz said the company expects more growth next year, with cloud revenue expected to grow by double digits, buoyed by partnerships with companies like: Microsoft, Googleand the darling of generative AI Open AIOpenAI, which is keen for any cloud infrastructure, will be using Oracle’s cloud for training ChatGPT.
“In the third and fourth quarters, Oracle closed the largest sales deal in our history, fueled by massive demand for training AI large-scale language models on Oracle Cloud,” Catz said.
Like SAP, Oracle Recently signed a contract Partnering with Nvidia to help governments and businesses run “AI factories” locally using Oracle’s distributed computing infrastructure.
But it’s not all rosy. One of Oracle’s major clients, TikTok, is facing a ban in the U.S., and Oracle Warning of the Week This could impact future earnings.
Big Blue Eyes is back
IBM was founded in 1911 Calculation, tabulation and recording companyreached March hits highest price in 11 years At $180 billion, it’s down just 6% from its all-time high.
The company’s valuation has fallen about 14% since then to below $160 billion, but it’s still up 30% from last year.
IBM was once a hardware company that focused on mainframes and PCs, butBig Blue” teeth Software and services companies,the current Accounting for the majority of revenueIBM spun off its legacy infrastructure services business into a standalone company called Kyndryl in 2021.
IBM started its cloud journey in 2007 with Blue Cloud and has continued it over the years with the launch of IBM Cloud and landmark mega-acquisitions such as Red Hat. In parallel, IBM has brought AI to the forefront, starting with IBM Watson and more recently with a host of AI services to support the AI demands of the enterprise. Watsonkushelps businesses train, tune, and deploy AI models.
“Client demand for AI is accelerating, with Watson and generative AI deals nearly doubling from the third quarter to the fourth quarter,” said Arvind Krishna, IBM chairman and CEO. Q4 2023 earnings to be announced in January.
IBM’s recent financial performance: Q1 2024 The figures showed a modest revenue increase below analyst expectations and a better-than-expected profit, while consulting revenue fell slightly.
But two months on, analysts are now bullish on IBM’s future, with Goldman Sachs This week’s donations IBM received a “Buy” rating thanks to its investments in AI and continued focus on infrastructure software.
“We believe IBM is in the midst of transforming its portfolio from a legacy-heavy one to a suite of modernized application and infrastructure software and a broader range of services,” said Goldman Sachs analyst James Schneider. Said.
It’s too early to tell how this sentiment will change, but IBM’s AI investments are paying off As far as Wall Street is concerned.
Legacy Construction
SAP, Oracle and IBM aren’t the only legacy software companies enjoying a boom. Intuit, a 41-year-old financial software company, strike That’s slightly below last month’s high of $187 billion. Pandemic-era highs $196 billion. Like other companies, Intuit is investing heavily in AI to stay relevant. This is the first thing The company spoke about this in its earnings call.
And Adobe, founded in 1982, It’s going pretty well too.Adobe’s valuation rose 8% year over year to $236 billion. Adobe posted record first quarter and Second Quarter Earnings AI and Cloud It is touted as being key to this growth..
Microsoft is the world’s most valuable company, a $3.3 trillion market cap behemoth whose shares have risen 33% in the past year. In his decade as CEO, Satya Nadella has transformed Microsoft into a cloud-first, AI-first giant, despite earlier missteps that saw it lose out to the smartphone gold rush.
Microsoft turns 50 next year, and staying relevant through so many industry, technological, political and business changes is no easy feat. But Microsoft has done more than just stay relevant. Its revenues, profits and Almost every other metric Continues to rapidly increase, Through investment In the cloud, these days Generative AI.
While these companies are certainly benefiting from adopting new trends, there are other factors at play, notably investors who have fewer places to park their money to invest in new technologies.
Ray WangFounder and Principal Analyst of Constellation Researchbelieves that reduced competition in certain markets is helping to steer investors towards larger companies.
“There’s very little competition because of oligopolies and duopolies,” Wang told TechCrunch. “There used to be hundreds of software companies, but decades of mergers and acquisitions have narrowed the options down to just a few in every geography, category, market size and industry.”
Wang also pointed to the sluggish IPO market and the influence of the private equity sector as reasons for the strength of legacy technology companies.
“The IPO market has collapsed due to the COVID-19 pandemic. There are no startups that can grow into the next Oracle, SAP or Salesforce like before. Many software companies have been founded but their pipelines are poor and they are unable to scale,” Wang said.[And] Many PE buyouts destroy entrepreneurship and [have] We turned these companies into financial robots.”
There are many ways to slice and dice all of this, but it’s the established software companies that are ultimately best positioned to thrive when breakthrough technologies like AI emerge, due to their market presence and stable customer base.
The respective cloud migrations are also a big part of the story, tying in nicely with the rise of AI, which relies heavily on the cloud.
They also have vast resources at their disposal, and strategic acquisitions play a big role in keeping them competitive: IBM recently made a $6.4 billion bid for HashiCorp, bolstering its hybrid cloud ambitions, while SAP has revealed plans to make a $1.5 billion bid for HashiCorp. AI-powered Digital adoption platform WalkMe.
AI may have little impact on corporate bottom lines right now, but when it comes to Wall Street, it’s a necessity. alphabet, Amazonand Microsoft, both of which recently hit record highs. AI is a big part of it. apple Stock prices also hit an all-time high While “Apple Intelligence” isn’t available yet, Apple is exploring how it can use AI following its recent AI announcements.
While the AI wave may be floating all boats right now, Gartner’s famous “Hype CycleThe paper predicts that interest in new technologies will wane as early experiments and implementations fail to live up to expectations, a phenomenon it calls the “trough of disillusionment.” This could be coming, according to Lovelock, which means it could be something many multi-billion-dollar generative AI startups are worried about.
“It’s easy to get lost in the emerging software market,” Lovelock says, “and it’s hard to get attention when new AI companies are boasting billions of dollars in revenue just a few years after launching. Yet the traditional software market is expected to exceed $1 trillion in total annual revenue in 2024. Legacy software sales are growing robustly, and the rapid growth of AI has made this fact invisible to many.”
Companies that have been around for decades are better positioned to thrive thanks to their existing foundations. We may be in an AI bubble, but once mainstream adoption really starts to take off, the SAPs, Oracles and IBMs of the world will be in a position to jump on board.