SAP to invest $2.1 bn in Gen AI shift and $1 bn in AI Startups

German software firm SAP has announced a $2.1 billion restructuring plan, affecting 8,000 positions, as it shifts towards artificial intelligence (AI)-focused business sectors. 

In a statement, SAP outlined that the restructuring would mainly involve voluntary leave programs and internal re-skilling initiatives, concentrating on key growth areas like business AI. Additionally, the company aims to allocate nearly $1 billion to invest in AI-powered tech startups through its enterprise capital firm, Sapphire Ventures. 

SAP foresees the restructuring costs impacting operating profit, with the majority expected in the first half of 2024. 

The company envisions a significant business transformation through generative AI and has committed to invest over $1 billion through its AI-powered technology startup arm, Sapphire Ventures. 

In July last year, Sapphire Ventures also announced its plan to invest over $1 billion in AI enterprise startups, emphasizing the global adoption of the technology by companies. The firm said most of the funds will be directly invested in AI startups, with some allocated to early-stage AI-focused venture funds through its limited partner fund, reported Reuters. 

In a separate announcement, SAP provided projections for 2024 cloud revenue to be in the range of €17 billion to €17.3 billion euros ($18 billion). It also updated its 2025 outlook, estimating an adjusted cloud gross profit of approximately €16.2 billion($17 billion). 

SAP aims to reposition itself for faster growth, partly fueled by artificial intelligence, following a 5% year-over-year revenue increase in the fourth quarter. Concerns about the economy and higher interest rates have impacted tech spending, leading to industry-wide layoffs since late 2022. A year ago, SAP announced the elimination of 3,000 roles. 

This downsizing trend has continued into 2024, with companies like Alphabet and Amazon announcing layoffs this month. 

SAP now anticipates a 2025 adjusted operating profit of 10 billion euros ($10.85 billion). While this is a 2 billion euro decrease from its previous outlook due to share-based compensation, it is offset by a €500-million increase resulting from planned efficiencies from the restructuring.