The eclipsing of Danish drugmaker Novo Nordisk (NYSE: NVO) by German software giant SAP as Europe’s most valuable listed company, marks a shift in investor sentiment from pharma to tech.
The recent rise in SAP’s market cap to around €314 billion (Novo Nordisk €310 billion) has been underpinned by investor confidence in cloud computing, artificial intelligence, and a broader appetite for European tech.
Growth in SAP’s market cap has also had a material impact on the structure of European markets, with the company now accounting for more of Germany’s DAX index than any other stock and sometimes breaches the 15% weighting cap set by Deutsche Börse.
Could SAP be New York bound?
The shadow SAP now casts over the Deutsche Börse has raised questions over whether it could go the way of Linde plc (NASDAQ: LIN).
The leading industrial gas company quit the DAX in 2023 and shifted its primary listing to New York to avoid index constraints and access deeper capital markets.
While the DAX has in recent year adjusted its rules to retain heavyweight constituents like SAP, the concentration remains a big issue.
SAP’s market predominance has overtaken that of German industrial bellwethers like Volkswagen, Siemens and Mercedes-Benz.
This provides further evidence that Europe’s largest economy is pivoting further away from manufacturing toward enterprise software and data services.
While Novo Nordisk now sits in second place on Europe’s corporate leaderboard, French luxury group LVMH currently ranks third by market cap, followed by Dutch semiconductor equipment maker ASML.
SAP’s AI reincarnation
Meanwhile, market excitement about SAP’s reincarnation as a cloud-first company have seen the German company’s shares jump over 40% in the past 12 months.
Underscoring the company’s current transition is the gradual move of its enterprise resource planning (ERP) software business from on-premises licences to cloud-based subscriptions, plus the layering on AI features.
Transition timeline
What’s accelerating the current shift to the cloud was the decision SAP made in 2020 to no longer support clients that hosted its ERP systems on their own premises after 2027.
SAP’s CEO Christian Klein recently told investors that the company had outpaced all of its software-as-a-service rivals in offering AI-based services to clients.
By integrating AI into its software, SAP is planning to help retailers predict orders, and pushing out a generative AI assistant, called Joule, and SAP Knowledge Graph that connects data from various systems to enhance AI models.
“We have had a super start with over 34,000 customers using our AI, but the next big thing around the corner is agentic AI, where you can really automate and orchestrate processes, like a sales agent talking to a supply chain agent,” said Klein.
“The technology is there now, we just need to get it out in the next year and get it adopted by our customers, to show that this is not only hype.”
Meanwhile, Australia and NZ are SAP’s fifth-biggest markets for cloud use behind the United States, Germany, India and Japan.