The recent sell-off in software stocks driven by concerns that generative artificial intelligence will erode profits may have gone too far, with SAP emerging as one of the most unfairly punished names, according to Bank of America.
In a research note published on Wednesday, analysts at the bank acknowledged that generative AI presents genuine risks to traditional software companies.
These include the threat of new tools and competitors, lower barriers to entry, and increased pressure on pricing models.
However, the bank argued that the market is failing to differentiate between structurally vulnerable companies and those with more insulated business models.
BofA analyst Frederic Boulan said investors should use the current slump to accumulate shares of software companies with strong competitive positions and defensible franchises.
“Software companies are not equal in front of AI risks. Deep domain expertise and business integration are hard for new entrants to replicate, making complex, mission-critical platforms like SAP less vulnerable as they embed GenAI using proprietary customer data,” Boulan wrote.
“Although we believe some segments of the tech ecosystem are bound to be profoundly impacted by Gen AI, we see current levels as attractive for stocks like Buy-rated SAP with strong moats and potential AI upside,” he added.
Valuation reflects unlikely growth shock
Bank of America said the recent rout has left SAP priced as though it is heading for a severe and unlikely slowdown in growth.
The company, which is headquartered in Germany and trades on the New York Stock Exchange, is currently valued in a way that implies a sharp deterioration in its long-term fundamentals, according to the analysts.
Boulan said that, based on the bank’s existing forecasts for the period from 2026 to 2030, SAP is expected to deliver revenue growth of around 11% annually and earnings growth of about 15%.
Despite this, he said the current share price reflects an assumption that revenue will contract by roughly 3% annually after 2030 and decline by 14% by 2035, leading to a 20% fall in operating profit.
“Assuming no changes to our current 2026-2030 forecasts (c. 11% revenue CAGR, c. 15% EBIT CAGR), we estimate the current share price reflects -3% revenue CAGR post 2030, a 14% reduction to 2035, driving a 20% EBIT decline,” Boulan wrote.
He added that such an outcome would require both a meaningful increase in customer churn and a halt in the transition from on-premise systems to cloud platforms, developments that the analysts view as unlikely.
Not all software firms equally exposed
The broader sell-off in software stocks has been driven by fears that generative AI tools will replace traditional software products, intensify competition, and undermine seat-based pricing models as productivity gains reduce the number of users required.
BofA analysts said these concerns are valid in parts of the sector but overstated in others.
The bank argued that companies operating in highly regulated, complex, and low-churn industries are better insulated from disruption.
“Highly regulated, complex, and low-churn industries (banking, construction, manufacturing, ERP) remain difficult to disrupt,” the analysts wrote.
They said deep domain expertise and tight integration with customers’ core business processes create barriers that are difficult for new entrants to overcome, particularly in enterprise resource planning and mission-critical software.
The analysts also highlighted the potential for established software companies to benefit from AI adoption, rather than being undermined by it.
They said innovative incumbents are “best positioned to build high-value AI agents” by leveraging proprietary datasets that are not accessible to general large language models.
As software-as-a-service providers pivot toward AI-first offerings, Bank of America sees increasing opportunities to monetise new products and services.
In SAP’s case, the firm noted that artificial intelligence has already been embedded at the core of its strategy, with more than 50% of its cloud bookings currently consuming AI-related services.
According to the analysts, this positioning strengthens SAP’s ability to defend pricing, deepen customer relationships, and generate incremental revenue from AI-driven applications.
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