Global Software - European Technology / Software: European software and services: The AI tide will not lift all boats

European Software and Services: The AI tide won't lift all boats AI is forcing a structural reset across European software and IT services. This note synthesizesour H1 research, showing AI is already reshaping business models, pricing and margins, notjust productivity. Our proprietary frameworks (AI leverage scorecards, disruption mapping,platform positioning) provide a consistent lens on winners vs losers. We reiterate ratings, butincrementally raise conviction in platform-led software and “Services-as-Software” leaders, Richard Nguyen+33 1 42 13 54 22richard.nguyen@bernsteinsg.comDerric Marcon+33 1 58 98 06 30derric.marcon@bernsteinsg.com AI is shifting software from applications to control planes, driving monetizationdispersion.The core shift is from “systems of record” to AI-enabled “systems of action,”where value accrues to platforms embedding AI into workflows. Differentiation is noweconomic - ARPU uplift, retention and pricing power tied to automation - rather than featurebreadth. The bull case is margin expansion through productivity and bundling; the bear case Mark L. Moerdler, Ph.D.+1 917 344 8506mark.moerdler@bernsteinsg.com Firoz Valliji, CFA+1 917 344 8316firoz.valliji@bernsteinsg.com Shelly Tang, CFA+1 917 344 8342shelly.tang@bernsteinsg.com AI is transforming services from labor arbitrage to “Services-as-Software.”Enterprisebehavior is pivoting faster than expected, with c.60% of clients planning to replace people-led delivery by 2028. This drives a shift from time-and-materials to outcome-based, AI-enabled models - expanding TAM while compressing legacy revenue pools. This is structural,not cyclical. Winners combine consulting, AI and proprietary IP to deliver scalable, recurring Specialist Sales Kiran Shah, CFA+44 20 3547 1533kiran.shah@bernsteinsg.com AI impact is bifurcated - driven by segment economics, not company labels.Ourdisruption framework (automatability vs defensibility) shows outcomes depend on revenuemix. High-defensibility platforms (ERP, databases, embedded workflows) remain resilientand monetize AI as a layer. High-automatability segments (analytics, BPS, applicationdevelopment) face structural pricing pressure. AI is rarely existential - it reallocates value Stock views reflect this dispersion, reinforcing selective conviction.We remainOutperform on platform-led software (SAP, Dassault Systèmes) and AI-enabled servicesleaders (Capgemini, Indra), where monetization, demand visibility and margin trajectoriesare strongest. Indra remains a Best Idea, with AI, defense and space accelerating re-ratingpotential. Capgemini screens as a high-conviction “AI transformer” despite near-term noise. Bottom line: AI is a stock-picking regime, not a sector uplift.We reiterate ratings butsharpen our stance: own platforms and IP-led services that capture AI economics throughpricing, data control and scalability. Conviction increases in early “AI compounders” andServices-as-Software leaders, while risks rise for low-defensibility models. The timeline for BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We reiterate our ratings and price targets. Outperform: 74Software (PT €55) | Alten (PT €135) | Arcadis (PT €48) | Aubay (PT €66) | Capgemini (PT €208) | Dassault Systèmes (PT €29)| Indra (PT €69) | Microsoft (PT $646) | Oracle (PT $319) | OVHcloud (PT €13) | SAP (PT €276 / $323) | Sopra Steria (PT €242)| Workday (PT $216) Market-Perform:Nemetschek (PT €104) | Reply (PT €120) | Sage (1,050p) | TeamViewer (PT €7.6) | Worldline (PT €0.35) Underperform:Atos (PT €43) | CGI (PT C$141) Table Of Contents Key sector reports................................................................................................................................................................................................................... 3Global software: Mid-market ERP at the AI inflection point..............................................................................................................................4Global Software: The coming AI supercycle in Supply Chain Software........................................................................................................ 5IT Services: The irresistible rise of Services-as-Software................................................................................................................................. 6Disrupted or supercharged? Mapping AI risks in Services and Software and AI disruption radar - Want to try it yourself?.........7Forward Deployed Engineering (FDE): Where AI software meets the real world and Forward Deployed Engineering: ForceMultiplier - or False Comfort - for enterprise AI....................................................................................................................................................8Artificial Intelligence... Sooner or Later: AI is already here - The structural reset of IT Services & Software.....................................9When Anthropic and OpenAI Meet IT Servi