This Tech Legacy Is Getting a Boost From AI

By Joel Litman, chief investment officer, Altimetry

SAP (SAP.DE) just became Europe’s most valuable company…

The German tech leader stole the crown from pharmaceutical giant Novo Nordisk (NVO) back in March… after hitting a market cap of €313 billion.

This capped off a 40% rally over the past year. It’s largely thanks to investor enthusiasm around SAP’s cloud transition and, more recently, its steady push into AI.

The company now makes up more than 15% of Germany’s DAX Index, dwarfing the entire auto sector. (The Deutsche Börse marketplace created a new uncapped index just because of SAP’s outsize influence.)

Analysts expect total revenue growth of 13% for SAP this year. The company’s cloud services, including its latest AI product, could expand margins even more.

Yet, despite its elite status, SAP may still be one of the most undervalued large-cap tech names. Today, we’ll explain what’s driving that trend… and what it means for investors.

SAP’s shift from on-site software licenses to cloud-based subscriptions is paying off…

The company’s cloud revenue, which incorporates the AI segment, is expected to rise 27% this year. It already grew 27% in the most recent quarter.

Cloud/AI earnings are stickier than SAP’s software license earnings and generate higher margins. This will surely benefit SAP as its AI products take off…

The company’s newest AI tool lets enterprise users connect external and internal data in real time… enhancing everything from supply-chain management to business forecasting.

Such developments could lock in more customers and strengthen pricing power. They could make SAP’s business more stable, scalable, and profitable.

---

Recommended Links:

Today, Marc Chaikin Is Closing the Doors Until midnight tonight, you can claim one FREE year of the “stealth” Power Gauge and essentially six free months of our corporate affiliate Chaikin Analytics’ Smart Money Trader. It’s a brand-new product with an underlying system that could help you double your portfolio. It spots which stocks could soon be at the center of massive Wall Street buying sprees in the wake of this year’s sell-off. Doors close on this offer at MIDNIGHT TONIGHT. Until then, click here for the full details. Want to Know Where to Invest $1,000 Right Now? Forget about AI, electric vehicles, crypto, robotics, and quantum computing. This technology could be 10 times bigger than all of those COMBINED. According to the World Economic Forum, this is “arguably the most exciting human discovery since fire.” And billionaire entrepreneur Vinod Khosla says “you can make a thousand times your money” by investing in this phenomenon. Click here for the full story.

---

We’re already seeing growing customer interest in its AI services. The company’s total cloud backlog (which, again, includes AI) surpassed €63 billion in 2024… It’s up 43% year over year.

And yet, the stock doesn’t reflect all this strength. Shares are still down nearly 3% from their March peak due to market volatility. But the story doesn’t end there…

Many investors simply haven’t priced in SAP’s ongoing AI boost…

We can see this through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

SAP’s Uniform return on assets (“ROA”) has hovered around 20% for the past five years. Now that the company is scaling its AI technology, analysts expect the Uniform ROA to jump to 27% by 2026.

However, the market thinks SAP’s profitability will stagnate at around 28% by 2029. Take a look…

Although SAP has improved operations, the market still expects modest performance. In reality, its AI innovations could drive stronger returns for years.

Unlike many overhyped tech stocks, SAP has strong fundamentals, real AI products, and growing customer adoption…

Its shift to cloud-based technology has already boosted margins. And now it’s layering in AI tools that make SAP’s software even more valuable.

But the market is still anchored to the past – when SAP focused squarely on legacy software. That’s why we’re zeroing in on the company’s true profitability.

SAP has become Europe’s most valuable company. And its AI-fueled growth is likely to continue… pushing it further into the stratosphere.

However, take note… Even if the market catches on, SAP could remain largely undervalued. And that means investors could get in cheap.

Regards,

Joel Litman
May 8, 2025

The first of many promised trade deals… It was well received in the market… Trump’s choreographed plan… Pity the fool… ‘That’s the way life is’… More developments in nuclear energy… It’s a ‘purple’ issue…

We’ve got a deal!…

America’s old friend, the United Kingdom, is the first nation to reach a post-“Liberation Day” trade deal with President Donald Trump.

It’s just a framework agreement so far, with more promised “in the coming weeks,” but the market sure liked it anyway.

The major U.S. stock indexes all turned higher after 11 a.m. today. Each gained at least 1% intraday and the small-cap Russell 2000 was up 2%-plus, while bitcoin crossed $100,000 for the first time in months.

Today marked 80 years to the day that the U.S. and the U.K. partnered to help end World War II in Europe, Trump noted in his announcement. And in a roughly hourlong event in Washington, Trump called this deal the “first in a series of agreements” that the U.S. plans to make with trading partners in the name of “reciprocity and fairness.”

The terms were initially less clear – “the final details are being written up,” Trump said in an opening statement. But as the president spoke, a graphic appeared on his Truth Social account, saying that the deal opens a path for $5 billion of U.S. exports and $6 billion of tariff revenue…

On Monday, we pondered “deals or no deals?” about this upcoming week and posited that the market could get impatient if nothing happened soon. Well, Trump & Co. gave the market what it wanted today.

What we heard…

I (Corey McLaughlin) noted a few proposed details that were mentioned.

Members of the White House administration and the U.K. leadership gathered around Trump in the Oval Office. They spoke about the U.K. “opening their markets” to ethanol (dropping a U.K. tariff from 19% to zero), beef, and machinery, while “protecting” U.K. workers, too, U.S. Commerce Secretary Howard Lutnick said.

The U.S. will keep a fresh 10% tariff on all U.K. imports in place… But Trump decided to cut tariffs on the first 100,000 imports of cars each year from the U.K. from 25% to 10%, and the U.S. will ease import costs on Rolls-Royce engines that Boeing (BA) uses to build airplanes. Lutnick said an unnamed British airline will buy $10 billion in Boeing aircraft. Reports say it is British Airways parent International Airlines Group.

Furthermore, the U.K. has agreed to align steel and aluminum policy with the U.S. to combat “dumping,” with the clear but unnamed target being Chinese exports. Tariffs on U.K. aluminum and steel will drop to zero. There was also some talk of the U.S. and U.K. creating a “technology partnership” for national security reasons.

Everyone in the room acknowledged that more talks were needed.

Nevertheless, it sounds like things are happening in general agreement… U.K. Prime Minister Keir Starmer, who joined the announcement by phone, said “it feels completely historic” and gave the floor to Lutnick to share whatever details he wanted.

But what appeared to juice the market most was the idea that more ‘deals’ are to come…

Anyone who was paying attention to this political gathering today could get a sense that something like it could be expected again from the outcome of other trade negotiations –with India, Japan, South Korea… and even China.

Trump, again, outlined what sounds like an already choreographed plan to roll out more announcements over the next few weeks. He said more press conferences will come but then eventually the White House will just put out press releases with tariff rates and details of agreements with countries. He’s making it sound inevitable.

The White House made that explicit in a press release afterward…

Today’s action also sets the tone for other trading partners to promote reciprocal trade with the United States.

Like we said last week about a promise to have trade deals in place within the next two weeks, “Don’t say he didn’t tell you.”

About China et al…

Trump was also asked a few questions about China. This includes his expectations from the planned meeting between Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer in Switzerland this weekend to break the ice with China in trade talks.

Trump was upbeat about the prospects and said he expects “substantive” talks rather than just an introduction. He looked toward Bessent – who two days ago said on TV that he didn’t expect a big deal to come from the talks – while saying…

People like to say, “We’re having a meeting to meet.” Well, we’re meeting. So, what are we going to do? Talk about meeting again? I think it’s going to be substantive. I think we can say that? Right, Scott?

Trump also said the 145% tariff on imports from China “can’t get any higher… so we know it’s coming down.”

Meanwhile, the White House has reportedly told at least a few Wall Street executives that India’s latest warring with neighboring Pakistan has delayed a trade deal with India. However, that violence didn’t stop the U.K. from agreeing to its own India deal this week – which may have been the White House’s motivation to announce something, too.

So, we’ll see what comes next.

Either way, when the news of an agreement the U.K. broke late last night, stock market futures started moving higher… The major U.S. indexes opened up this morning, then jumped further as Trump spoke from the Oval Office.

Oil prices have moved up by roughly 3% in the past 24 hours. But U.S. standard West Texas Intermediate is still around $60 per barrel, and Brent crude – the international benchmark – is around $63. Bitcoin went past $101,000 today, and it’s now up roughly 30% since Trump’s “90-day tariff pause” announcement on April 8.

The S&P 500 Index is up about 14% in the same span… It gained 0.6% today and is less than 1% from returning to its longer-term 200-day moving average.

Clearly, this is a market that could be bullishly receptive to a string of trade deals, be they frameworks or more concrete plans. And it looks like the White House is intent on delivering them.

Oh, and about the Fed…

The press conference featured a brief edition of “Bash Jerome Powell,” too…

Yesterday featured a big nothing-burger decision and outlook from the Federal Reserve and Powell yesterday – “we just don’t know,” the Fed chair said of the tariff impact on the economy. It didn’t take long for Trump to share his displeasure.

Just after 6:30 a.m. Eastern time today, a post went up on Trump’s Truth Social account describing Powell as a “FOOL” for holding the federal-funds rate range steady rather than lowering it…

The president continued later, saying rate cuts would be “like jet fuel” for the economy and markets but that Powell is always “too late” when making decisions and is “not in love with me… It’s sort of a crazy reason, but that’s the way life is.”

Asked if he would meet with Powell (a subject that came up during the Fed press conference yesterday), Trump said no. “It’s like talking to a wall,” he said.

Overall, Trump sounds resigned to the fact that he’ll just wait until Powell’s term is up in 2026 to replace him, rather than go down the road of attempting to fire him (which is unclear if he can do under law).

So as we wrote yesterday, expect the central bank to make decisions on its own timeline and for its own reasons… not based on what it’s hearing from politicians.

Switching gears, we’re keeping our eyes on plenty of matters unrelated to tariffs and the Fed…

Underreported topics often make for great investing opportunities. Today, we’re looking at the potential in a spot few people are talking about – nuclear power…

Last month, the Department of Energy published an update on Trump’s nuclear milestones – including things like restarting existing nuclear plants, issuing $900 million in funding for small modular reactors (“SMRs”), and even signing a deal to build nuclear plants in Poland.

But nuclear isn’t done there…

According to a new report from Axios, the White House is looking into ways to speed up the process of approving new nuclear projects. And according to the report, that could include cutting down on licensing delays from the Nuclear Regulatory Commission (“NRC”).

According to the Energy Information Administration, the NRC licensing process can take up to five years. And it can take another five years for companies to build reactors once they get approved.

Energy demands are already surging from big tech companies because of artificial intelligence (“AI”). As the Stansberry’s Investment Advisory team wrote in December…

Tech companies are tripping all over themselves to secure energy from nuclear power plants.

The Magnificent Seven tech companies have pledged hundreds of billions of dollars toward AI infrastructure like data centers. Microsoft (MSFT) and Amazon (AMZN) have already paid up to secure nuclear power from utility companies.

In total, the International Energy Agency estimates that data centers and AI will need more energy by 2030 than the entire country of Japan does today. So waiting 10 years to bring those new energy sources online can feel like an eternity.

Here in the U.S., AI’s energy needs could triple. As Commodity Supercycleseditor Whitney Tilson explained in his most recent issue…

The data-center industry is forecast to consume 12% of all the electricity in the U.S. by 2030. That’s up threefold from just 4% of the country’s total electricity demand today.

Just yesterday, nuclear developer Elementl Power said it signed an agreement with Alphabet (GOOGL) to develop advanced reactors at three projects that will each generate at least 600 megawatts of power.

This is a ‘purple’ issue…

After the November election, President Joe Biden unveiled a roadmap to tripling U.S. nuclear energy production by 2050. As we noted in a Digest issue last November, nuclear energy is one of the few areas where both sides of the aisle agree.

That’s a good sign that the nuclear energy trend has legs – and won’t grind to a halt the next time Congress or the White House changes parties.

Nuclear energy has bipartisan support for a reason.

Whitney and his Commodity Supercycles team explained why companies and the government are turning to nuclear over other sources in their January issue…

Nuclear energy is clean. And, more importantly, it’s capable of supplying stable power to the grid.

That aligns with the 24-hours-a-day, every-day-of-the-year environment that data centers have to operate in.

In short, nuclear plants have lower downtime, are more efficient, and produce almost no greenhouse-gas emissions. Even with the issue of managing nuclear waste, it makes sense why the government is looking to triple its nuclear energy output over the next 25 years.

Since Whitney and his team unveiled their five favorite ways to play the boom in nuclear energy last May, this basket of stocks is up an average of about 15%. That beats out the S&P 500’s 8% gain over the same period. And it outperforms the 1% gain of the VanEck Uranium and Nuclear Energy Fund (NLR).

This trend isn’t over yet. We’re still in the early stages of boosting nuclear energy production here in the U.S. And those nuclear-related stocks in the Commodity Supercycles model portfolio still have room to run. All five are still in buy range today.

Existing Commodity Supercycles subscribers and Stansberry Alliance members can find our team’s latest update on these stocks in the April issue… If you’re interested in joining them, click here to hear more from Whitney and get started today.

---

Recommended Links:

Today, Marc Chaikin Is Closing the Doors Until midnight tonight, you can claim one FREE year of the “stealth” Power Gauge and essentially six free months of our corporate affiliate Chaikin Analytics’ Smart Money Trader. It’s a brand-new product with an underlying system that could help you double your portfolio by spotting which stocks could soon be at the center of massive Wall Street buying sprees in the wake of this year’s sell-off. Doors close on this offer at MIDNIGHT TONIGHT. Until then, click here for the full details. Want to Know Where to Invest $1,000 Right Now? Forget about AI, electric vehicles, crypto, robotics, and quantum computing. This technology could be 10 times bigger than all of those COMBINED. According to the World Economic Forum, this is “arguably the most exciting human discovery since fire.” And billionaire entrepreneur Vinod Khosla says “you can make a thousand times your money” by investing in this phenomenon. Click here for the full story.

---

New 52-week highs (as of 5/7/25): CBOE Global Markets (CBOE), CME Group (CME), Cencora (COR), Intercontinental Exchange (ICE), Kinross Gold (KGC), Grand Canyon Education (LOPE), Altria (MO), Republic Services (RSG), Spotify Technology (SPOT), Travelers (TRV), Verisk Analytics (VRSK), VeriSign (VRSN), and W.R. Berkley (WRB).

In today’s mailbag, feedback on the latest from the Federal Reserve yesterday and replies to our report in yesterday’s edition about the “frozen” housing market…

Also, thanks to subscriber Tim T. for pointing out a numbers error in yesterday’s e-mail. The Strategic Petroleum Reserve is around 399 millionbarrels, not 399,000. We’ve corrected the info on our website. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

“If the FED truly is in ‘wait and see’ mode on policy then shouldn’t they stop shrinking their balance sheet to ‘wait and see’ how the 26%+ haircut they’ve already done since March of 2022 will play out? While everyone is focusing on interest rates, they are behind the scenes draining liquidity nearly every single week (over $13 billion last week) since 2022. On an annual basis they’ve cratered their balance sheet by over 12% a year…” – Subscriber Ryan E.

Corey McLaughlin comment: I hear you. I also wonder why the Fed is still doing that. Though in March, the Fed said it would begin slowing down its pace of balance sheet shrinkage to “only” $5 billion per month – down from a previous cap of $25 billion per month.

So while “quantitative tightening” is still happening, as you note, the Fed is pulling back on the pace of it. And money supply is actually rising, as it has been since the middle of 2023.

“Based upon what I observe and discussion with realtors, the most significant restraint is the high purchase cost of a house and the cost of maintaining ownership (insurance, taxes and maintenance). I remember buying a house in the 1980’s at interest rates exceeding the current rates but with the house cost (basically equivalent house) about 20% of current prices. Wages for the vast majority of people have not increased as fast as these costs.” – Subscriber William B.

“Interest rates are not the problem with housing. My first mortgage carried a 12.5% interest rate and my second was 9.125%. The problem with housing is the cost of a house. Today, I could not afford the house I’ve been living in for the past 34 years.” – Subscriber Rex P.

“Have to disagree with Corey that ‘it’s all due to interest rates.’ Unless/until housing prices come down 30% the vast majority of society cannot own. This situation has been building for years and is a great destabilizer of our society. We who own are horrified at the thought of falling prices, but which is worse – that or social chaos?” – Subscriber Robert B.

McLaughlin comment: Thanks for the notes. That the housing market is frozen “all” because of interest rates may be slightly overstated, I agree. If rates were lower, like they were in 2020 and 2021, we’d see more willing buyers. But home prices also contribute to the lack of affordability.

So point taken… Median home prices are more than 25% higher than before the pandemic, too, and many folks’ incomes haven’t matched that rise. Supply is also an issue, and inventory that is available has proved too expensive, as we discussed yesterday.

My wife and I have been looking to move for almost a year, and we still haven’t found the right house within our budget. So I’m too familiar with the conditions.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
May 8, 2025