What Happens When the AI Bubble Pops? The Trade Is Losing Its North Star

**SPEAKER_1** (0:01)
This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time. Here's your host, Luke Guerrero.

**Luke Guerrero** (0:16)
Good afternoon, fellow investors, and welcome to the Tuesday, July 7th, 2026 edition of Invest Talk.
I'm your host, Luke Guerrero, and I'll be with you over the next hour as we dissect what happened in the market today, bring you stories that matter, and most importantly, answer your finance and investment questions. But being that it was just one week ago, I do want to send out yet another reminder that if you missed our latest wealth webinar, Beyond the Yield, How to Invest for Your Income Needs, that is available now on the Invest Talk YouTube channel, and it is free to watch. So I encourage you to head over there and check out that webinar or any of our previous webinars. All right, in just a bit, we'll talk about today's market performance. We will run down our show topics, but why don't we kick it off by answering a fresh collar question now.

**SPEAKER_3** (1:11)
Hey, Justin and Luke. I was looking at Sap Se.
The company is, it looks like it's down pretty much over the year and it looks like a pretty good company. I know the AI is kind of the dark cloud looming over it, but what do you think? It seems like it's a solid company that has been doing well. So let me know what you think. Thanks.

**Luke Guerrero** (1:32)
Sap is Sap Se. It is a German based enterprise software company. So they got Sap Business, they have Business Data Cloud, all sorts of different software solutions. Concur. I know my old company we used to use Concur. A lot of companies use Concur. And they have nearly half a million customers in over 180 countries. Now, year to date, this thing has been brutalized down 32.99%. Year to date down 46.73% over the past 52 weeks. So this name that was once trading at 43 times price to Public Earnings is settled down to about 17.6 now.
Their most recent quarter ended April 23rd, or rather they reported April 23rd. Looks like cloud revenue was up 27%. Pretty solid. Cloud ERP sweet revenue growth 30%. Current cloud backlog rose 25%. Total revenue was up about 12%.
But in spite of the revenue and earnings beat, because earnings rose 20%, despite that, the stock fell roughly 6.1%, 6.2% after hours.
And one of the reasons why is the CEO has flagged that for them, they're seeing a bit of a slowdown in deal closing. And so although that may not weigh on past revenue, past earnings, certainly could weigh on the future. And in fact, you had this growth acceleration they were hoping for in their guidance, really thrown out the window for 2026 and pushed deeper into 2027 Another thing to keep in mind, I mean, this is not a US company. It's a German company, meaning if the dollar is strong versus the euro, that's a pretty meaningful headwind.
I think what I do like though is there really is growth here. I mean, their operating margins are still really solid. Even the margin actually grew from 2023 into 2025, from 25.5 to 31%.
It's probably one of the most important tech companies in Europe. And as I mentioned at the top, I mean, it's at its cheapest valuation in years. It's not the cheapest it's been over the past five years, but it is pretty cheap. And a lot of it has a... The business has a moat that certainly no business in Europe has cracked in half a century. But you have those things going against it. There's an AI-driven modernization cycle. That's real.
Given the slowdown in the business and slowdown in growth projections into 27, though, what's the short-term, near-term catalyst? I'm not exactly sure. For me, I mean, this thing is kind of at support here. It's broken down. It's technically poor since the beginning of 2025 or middle of 2025 I like this company. I think it's a solid one. I think it has a solid growth path into 27 But picking it up right here might be a stretch. I'd wait to see if it really floats around the support here. Because, I mean, it's a cheap valuation. The upside certainly is there. That is Sap Se, Sap, thanks for the call. Well, we had a great show yesterday. We looked into a story about the Roth conversion window and how mid-year is really a smart time to start to model conversions. Because when you get to year end, I mean, tax planning gets a little bit rushed. We also answered a listener question on ticker ATI, which is ATI Inc. It's an American producer of specialty materials that is headquartered in Dallas. They produce metals like titanium, titanium alloys, nickel based alloys. We talked about that company and some of the reasons why we hold it for clients. That question was submitted via the comment section of the Invest Talk YouTube channel. As always, if you happen to miss yesterday's show, I encourage you to go check it out. Remember, the best way to never miss the show is to follow Invest Talk wherever you get your podcasts. On to today, where we have another great story to bring you, namely, what about what happens when the AI bubble pops because the trade is really seeming to lose its north star. In fact, Bloomberg is reporting that one of the key signals driving the AI trade losing a bit of its reliability and that raises a critical question for all of us who have built positions around AI infrastructure, around chips, around related names, because when the narrative cracks, understanding what's driving valuations underneath becomes more important than ever. Also a story we tried to bring in yesterday, but we ran out of time on the earnings bubble fears on Wall Street. An analysis on how AI has really taken over the stock market and the bond market is probably next. And should we have time at the end of the show, we'll touch on how banks are exploring a deal to fundamentally change payments and transactions and why that might be a little upsetting to Mr. and Mrs. Consumer. We also have some voice-back calls ready to play, including one on Roth conversions, a follow-up on the show topic yesterday, it seems, and another on Applied Industrial Technologies, which is ticker AIT, not to be confused with ticker ATI from yesterday.