Introduction#

Recent evaluations of enterprise software companies show that their stock prices have dropped significantly, largely due to concerns about potential disruptions from artificial intelligence (AI). Rothschild, a brokerage firm, believes that while AI poses some risks, many established companies in this sector still hold strong competitive advantages.

Valuation Concerns#

According to Rothschild, the current valuations of enterprise software stocks are at historical lows. This decline is attributed to worries about how AI could impact pricing in the near term. Despite these concerns, the firm argues that the underlying strengths of these companies—such as their data and business logic—remain intact. Rothschild has adjusted its revenue forecasts and price targets to account for possible pricing pressures linked to AI, but it still sees significant value in the sector.

Key Stock Picks#

Intuit#

Rothschild has upgraded Intuit's rating from Neutral to Buy, raising its price target from $670 to $700, indicating a potential upside of 59%. The firm believes that Intuit's products, like QuickBooks and TurboTax, are well-protected against AI disruptions due to their reliance on complex regulations and strong network effects. With projected annual revenue growth of 13% and free cash flow growth of 15% over the next five years, Intuit appears to be a solid player in the market.

SAP#

Rothschild has also reiterated its Buy rating for SAP, lowering its price target from €300 to €290, which still suggests a 57% upside. SAP is viewed as particularly resilient against AI disruptions due to its control over unique data and complex migration paths. The firm anticipates an 11% annual revenue growth and a 17% growth in free cash flow over the next five years. Additionally, SAP plans to distribute approximately €2.92 billion in dividends based on its 2025 earnings.

ServiceNow#

Lastly, Rothschild maintains a Buy rating on ServiceNow, with a reduced price target of $215, reflecting a potential upside of 98%. The firm highlights ServiceNow's intricate platform integrations and unique database as key strengths that should help it navigate the challenges posed by AI advancements.