No more Novo

A combination of SAP’s blistering rally and Novo Nordisk’s struggle to retain investor interest has allowed the German tech company to vault Novo and claim Europe’s number-one spot.

SAP, up over 40% in the past year, now reaps the benefits of its pivot to cloud computing in 2024 which allowed them to develop a hoard of new applications for artificial intelligence. 

The pivot has been a roaring success, as analysts expect SAP’s cloud revenue to increase by nearly 30% this year alone. 

Under SAP’s former business model, there were limited opportunities for AI applications, especially for a tech company. This created an underlying level of investor uncertainty, limiting market cap growth for SAP.

Now, wider AI applications and tangible financial results in the cloud computing space have attracted more investor interest during the tail end of the ‘AI boom’.

Equity analyst Rob Hales said, “After some years of uncertainty, investor confidence is back in SAP’s growth outlook and leadership position in the [software markets]”.

Hales went on to upgrade SAP’s moat rating from ‘narrow’ to ‘wide’. 

Moat ratings are a measure of a company’s competitive advantage. The analyst upgrade in moat rating indicates a sentiment that their business model pivot has allowed them to better defend market share and earn higher returns on capital than competitors.

Antje Schiffler, of the Morning Star, observes how this reflects a broader shift in Germany’s economic identity as SAP now accounts for a larger proportion of total market value than traditional industrials like Volkswagen and Mercedes-Benz.

Meanwhile, investor confidence in the Denmark-based pharmaceutical company, Novo Nordisk, has been waning. 

Investors have been waiting for a follow-up to the GLP-1 weight loss drug which allowed them to topple the luxury conglomerate LVMH back in 2023 and become the most valuable company in Europe. 

They have experienced recent failure in drug trials, with their flagship obesity drug failing to outperform existing rival treatments such as Eli Lilly’s Mounjaro.

Novo representatives remain positive about the drug claiming that results have “confirmed the superior efficacy of CagriSema” despite this being unsupported by recent trial data.

An uncertain product pipeline has sowed uncertainty among investors, who want to see positive test results rather than positive statements from Novo representatives.