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Investors Business Daily
Business
MATTHEW GALGANI

Trustworthy Generative AI Propels SAP Stock Toward Fresh Breakout

From Nvidia to enterprise software firms like Salesforce.com, Workday and JFrog, an array of artificial intelligence plays make the IBD Breakout Stocks Index. SAP also makes this stock screen as it nears a breakout with earnings due Jan. 24.

As AI trends continue to drive NVDA stock and others to new heights, SAP puts emphasis on what it refers to as trustworthy AI.

In line with that push, the Germany-based global software giant has also just announced new AI-driven capabilities to help retailers. Through its SAP Business AI technology, the company seeks to help clients drive increasingly insightful, AI-driven decision-making. The goal is to enable retailers to optimize their processes to drive profitability and customer loyalty.

See Who Joins SAP, CRM And NVDA On The IBD Breakout Stocks Index

SAP Says Full Impact Of Generative AI Not Yet Realized

While the massive potential of generative AI is well known, SAP says its impact is not yet fully realized.

If applied as a tool to transform companies, supply chains, and entire industries, SAP believes generative AI can accelerate the evolution of the world economy, making it more sustainable, resilient, equitable and prosperous.

But ensuring the trustworthiness of generative AI remains key to achieving that promise. According to SAP, that primarily comes down to AI getting firmly established as relevant, reliable and responsible.

SAP emphasizes that AI is only as good as the data it is trained on. The software leader says the generic data used for today's most famous large language models (LLMs) will not help companies address particularly very granular problems. Providing context-specific proposals requires work with real-life enterprise data.

Reliability also matters. The stakes stemming from a single business decision can be very high. As a result, business AI outputs must require the greatest accuracy and quality.

SAP also emphasizes how generative AI for business has to be responsible. AI models trained on and working with public internet data may infringe on privacy and copyright regulations. SAP says that type of "gray zone" mode of operation is unthinkable in the business world.

The ethical implementation of AI also comes into play. SAP says ensuring ethical operations requires clear guiding principles, internal governance structures, and an advisory panel of external experts.

SAP Stock Generates New Buy Point

Fellow AI leaders Nvidia and Salesforce both made the list of the best stocks of 2023. NVDA stock continues to build on last year's gains as it now trades right around yet another all-time high. Enterprise software peers Salesforce, as well as Workday and JFrog, are also showing strength after an initial blip to kick off 2024. FROG stock has come under pressure but continues to find support at its 21-day exponentional moving average.

Meanwhile, SAP stock has set up an early stage flat base with earnings scheduled for next week. The buy point is 160.35.

While it is risky to buy any stock just before it reports, SAP continues to build on a strong rebound in both earnings and sales.

In each of the last three quarters, the company has posted earnings growth. For the third quarter, SAP flashed 40% year-over-year earnings growth to $1.53 per share. Top-line growth has accelerated over the same period. Q3 sales jumped to $8.186 billion, a 12% gain over the prior-year quarter.

IBD Breakout Opportunities ETF

The IBD Breakout Opportunities ETF from Innovator Capital Management tracks the IBD Breakout Stocks Index. As with other index ETFs, this fund allows you to invest in the entire index in addition to, or rather than, buying individual stocks. Learn more here about the ETF and Innovator.

Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.

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