Global Software: The Upcoming AI Super Cycle for Supply Chain Software

Global Software: The coming AI supercycle in Supply Chain We view supply chain software as one of the most compelling multi-year investmentthemes.Global supply chains are being rebuilt in real time in response to geopolitical shocks,inflation, ESG requirements, and rising customer expectations. Supply chain management(SCM) software has become the digital backbone of this redesign, and AI is accelerating the Richard Nguyen+33 1 42 13 54 22richard.nguyen@bernsteinsg.com Mark L. Moerdler, Ph.D.+1 917 344 8506mark.moerdler@bernsteinsg.com Derric Marcon+33 1 58 98 06 30derric.marcon@bernsteinsg.comFiroz Valliji, CFA+1 917 344 8316firoz.valliji@bernsteinsg.com SCM is among the fastest-growing enterprise software categories, set to double from$33bn in 2024 to $66bn in 2029 (CAGR +c.15%), creating $217bn of cumulative revenue AI is emerging as the new operating system for supply chains. By ingesting real-timesignals - from macro trends to logistics data - AI enables increasingly autonomous planning,inventory, and transport decisions. Financial gains are significant: lower working capital,higher service levels, and fewer disruptions. By 2030, c.80% of SCM spend is expected to Shelly Tang, CFA+1 917 344 8342shelly.tang@bernsteinsg.com Specialist Sales Cloud migration adds another structural tailwind. With SaaS growing c.23% annually,cloud penetration is set to rise from 52% in 2024 to 74% by 2029 - one of the largestremaining upgrade cycles in enterprise software and a major monetization vector for AI. Kiran Shah+44 20 3547 1533kiran.shah@bernsteinsg.com Themarket remains fragmented(Top 3:38%;Top 5:45%)with meaningfulconsolidation potential. SAP leads with c.25% share, more than 2.5x Oracle. M&Amomentum is building as vendors move toward end-to-end platforms and seek differentiated Keith Murray+1 917 344 8435keith.murray@bernsteinsg.com Pricing models are evolvingas outcome-based approaches link revenues directly tomeasurable value creation - such as reduced inventory or transport spend. This acceleratesAI monetization and expands the addressable market, though it introduces revenue variabilityand near-term margin pressure. Hybrid models (subscription + success-fee) provide balance Within this landscape, we viewSAPas the best-positioned beneficiary, supported by itsend-to-end suite, deep ERP integration, and the S/4 migration acting as a built-in SCMupsell engine. High switching costs and long-standing customer relationships reinforce its Oracleoffers, in our view, underappreciated AI-driven SCM upside through tight Fusion ERPintegration, leading transport management capabilities, and a unified data architecture that ITservices firms will be major beneficiaries as they execute complex AI-enabledtransformations and influence platform decisions. We viewCapgeminias particularly well- aligned with outcome-driven, AI-enabled supply chain programs. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We reiterate our Outperform ratings and price targets on Capgemini, on SAP (co-covered by M. Moerdler and R. Nguyen) and onOracle and Microsoft (covered by M. Moerdler). Table Of Contents Investment summary...............................................................................................................................................................................................................5Understanding the supply chain and its strategic importance................................................................................................................................ 7Supply chain fundamentals: what it is and why it matters.................................................................................................................................7Key trends transforming the supply chain market................................................................................................................................................9AI in the supply chain................................................................................................................................................................................................... 10Supply Chain Management software - The digital backbone of global operations....................................................................................... 11Essential overview: core capabilities, drivers, and challenges...................................................................................................................... 11Approximately c.$217bn in total revenue opportunity over 2026-29........................................................................................................13 DETAILS INVESTMENT SUMMARY We see the supply chain software market as one of the most compelling thematic investment opportunities of the next five years. Global supply chains are being rebuilt in real time. Since 2020, repeated shocks - from geopolitical disruption to inflation,ESG regulation, and rising customer expec