Today more than ever, companies are under pressure to make their processes more efficient, use data intelligently, and respond flexibly to market changes. In this environment, SAP (ISIN: DE0007164600) has been playing a key role for years by offering appropriate software solutions. With its cloud and ERP offerings, SAP enables the digitalization of complex business processes, real-time data analysis, and more informed decisions. SAP is the global market leader with a deep moat. The market is growing steadily. The transformation to the cloud is providing particular momentum. The stock also performed well—until early 2025.
Source: Stock Price
Recently, however, fears of the disruptive impact of AI have been mounting. New software tools from OpenAI and Anthropic impressively demonstrate what AI is capable of. With the release of OpenClaw, it also became clearer how AI agents can function. Many investors realized that these agents could eventually take over many of the functions of SAP software. The stock subsequently corrected sharply and can now be considered inexpensive in a historical context. But is that enough to justify a purchase? The following stock analysis shows how the company is benefiting from these global developments, what opportunities and risks they present, and how SAP is aligning its strategy, particularly in the areas of cloud and AI, to remain competitive in the long term.
Company profile – Market leader for ERP software
SAP is a German software company based in Walldorf, Germany, founded in 1972. The company's core business is developing business management software that companies can use to control their central business processes. These include, for example, accounting, controlling, human resources, purchasing, production, logistics, and sales. SAP supports companies in digitizing their processes, managing data centrally, and making data-based decisions in real time. SAP also has a very strong international position. With a market capitalization of almost €200 billion, the company is one of the largest software manufacturers in the world and the market leader in enterprise software. Hundreds of thousands of companies worldwide use SAP solutions, including many large corporations, but also medium-sized businesses and public institutions.
The Business of SAP in detail
Source: StocksGuide AI
SAP's business model consists of providing companies with software solutions that enable them to digitally map and optimize their business processes. SAP generates revenue primarily through the sale of software licenses, recurring maintenance and support contracts, and, today, above all, cloud subscriptions. In recent years, the company has evolved significantly from a traditional license provider to a cloud-oriented software group. In doing so, it is following an industry trend that initially saves customers capital and allows for greater flexibility.
The cloud – SAP's growth segment
In the cloud sector, SAP no longer offers its customers software for installation on their own servers, but provides it as a service via the Internet. Customers subscribe to these solutions and pay regularly, usually monthly or annually. The software runs in SAP or partner data centers, so companies no longer need to operate their own infrastructure. This reduces investment costs and enables faster introduction of new features. Particularly important in this context is the ERP cloud solution, which fully integrates business processes. Cloud revenues are not only relevant for customers. They also offer advantages for SAP. They provide predictable, recurring revenue and promote long-term customer relationships. In addition, SAP can roll out innovations more quickly because updates are installed centrally. No wonder, then, that they are still in high demand today. In 2025, SAP's cloud revenues rose by 23 percent and accounted for around 88 percent of total revenues.
The old SAP: software licenses and support
For a long time, “software licenses and support” was SAP's core business and the way software was traditionally sold. Companies purchase a permanent license for a specific SAP software and install it on their own servers. They usually also sign a maintenance and support contract. In return, they pay an annual fee, which is usually calculated as a percentage of the license value. In return, they receive technical support, security updates, bug fixes, and access to new versions. This is still important today, even though many customers are gradually moving to the cloud.
Opportunities and risks
The market for enterprise software, especially for so-called ERP systems, has some special characteristics. The products are very complex and require a great deal of explanation. In addition, they are usually used for many years, especially by business customers. However, due to the strong networking of the software and the necessary expertise of their own employees, they are strongly tied to SAP. Accordingly, customers rarely change their core software, as replacement involves high costs, considerable time, and risks. At the same time, competition is intense, as international technology groups also offer comprehensive cloud and business solutions. In addition, more and more focused start-ups have recently been targeting niches offering similar products. Innovation, technological advancement, and trust therefore play a particularly important role. Another special feature is the increasing digitalization of all industries. Companies need to make their processes more efficient, make better use of data, and work in an internationally networked manner. Issues such as automation, artificial intelligence, data security, and regulatory requirements are driving strong demand for modern enterprise software. At the same time, the shift of local IT systems to the cloud is changing market structures. Instead of one-time license purchases, subscription-based models with regular payments are increasingly dominating the market.
Source: StocksGuide AI
This presents SAP with significant opportunities. The ongoing global digitalization trend is increasing demand for integrated software solutions. The cloud business in particular offers growth potential, as many companies want and need to modernize their systems. Recurring cloud revenues ensure predictable income and more stable business models. In addition, SAP can create additional value for customers and set itself apart from the competition through innovations in areas such as data analysis and artificial intelligence. There are also long-term expansion opportunities in emerging markets, as many companies there still need to build or modernize their IT structures.
At the same time, there are risks. Competition from international software and cloud providers is fierce, which necessitates price pressure and high investments in research and development. The transition from the traditional licensing business to the cloud also weighs on profitability in the short term, as revenues from subscription models are spread over a longer period of time. Greater attention must be paid to customer value over the lifetime of the product. In addition, large IT projects at customers can be delayed or even fail, which can have an impact on the company's revenue and reputation. However, a major risk lies in the dependence on global economic developments, because companies tend to postpone larger IT investments, especially in times of economic uncertainty. Issues such as data protection, cyberattacks, or regulatory changes can also pose additional challenges.
Competition of SAP
Source: StocksGuide AI
The market for enterprise software is international and technologically very demanding. SAP is in direct competition with large, globally active software and cloud providers that also offer integrated solutions for core business processes. Competitive pressure is particularly high in the areas of ERP, cloud platforms, data analysis, and enterprise applications. Nevertheless, the market for enterprise software is dominated by only a handful of companies.
One key competitor is Oracle. Similar to SAP, Oracle offers comprehensive ERP, database, and cloud solutions. The US company has traditionally been very strong in the database sector and is investing heavily in cloud infrastructures. Another important competitor is Microsoft with its Dynamics platform and Azure cloud infrastructure. Microsoft scores particularly well thanks to the close integration of its enterprise software with the well-known Office products and a strong cloud base. Salesforce also plays a significant role, particularly in the area of customer relationship management (CRM). Salesforce is a pure cloud provider and was a pioneer of the subscription-based software model. In certain segments, SAP also competes with specialized providers that focus on individual functional areas such as human resources management, financial software, or supply chain optimization.
Source: Revenue
One special feature of this competition is that large customers often make very long-term decisions. Once an ERP system has been implemented, customers usually remain loyal to that provider for many years. Companies therefore compete fiercely for new implementations, migrations to the cloud, and enhancements to existing systems. Key success factors here are technological innovation, integration capabilities, and global service capacities. At the same time, cloud computing and artificial intelligence are also creating new competitive dynamics. Cloud providers can deliver new features faster and offer more flexible pricing models. In addition, platform strategies are gaining in importance, with ecosystems of partners, developers, and add-on applications being built around core software. For SAP, competition means high pressure to innovate and continuous investment on the one hand. On the other hand, its large installed customer base offers a strategic advantage. Companies that succeed in migrating their customers to modern cloud solutions while tapping into new markets can secure their market position in the long term. The revenue performance of the “Big 3” shows that SAP has fallen behind somewhat in recent years, even though its revenues have risen steadily. Little has changed in this regard in the last quarter.
The latest SAP quarterly figures from December 2025
In the fourth quarter of 2025, however, it became clear that SAP is consistently continuing its strategic transformation into a cloud company. Particularly noteworthy here was the strong growth in the cloud business. The order backlog in this area rose significantly once again, showing that many companies are signing long-term contracts and increasingly moving their systems to the cloud. The total cloud backlog also reached a high level of €21 billion, indicating stable and predictable revenue growth in the coming years.
Source: Financial data
A key point was the increasing predictability of revenues. The proportion of more predictable revenues, primarily from cloud subscriptions and support contracts, continued to rise. This is particularly relevant from an investor perspective, as stable, recurring revenues make the business model more robust and less dependent on individual large deals. Cloud revenues grew strongly, particularly in the cloud ERP suite segment. It rose by 23 percent to just under four billion euros in the fourth quarter of 2025. This underscores SAP's success with its core product for integrated enterprise management in the cloud model. At the same time, the traditional license business declined significantly, as expected. This trend is not surprising, but reflects the strategic shift from one-time license sales to recurring cloud subscriptions. Overall, group revenue therefore grew only moderately; however, adjusted for currency effects, growth was significantly stronger, showing that exchange rates had a noticeable impact. Specifically, revenue grew by 3 percent to €9.7 billion in the fourth quarter of 2025.
There were also important developments on the earnings side. Operating profit rose by 14 percent to €2.8 billion, and the operating margin also improved noticeably. Although special items such as costs related to a personnel transformation and expenses from a legal dispute weighed on earnings, profitability ultimately showed a clear improvement. Nevertheless, there was a clear improvement in profitability at the end of the period. This illustrates that SAP is not only growing but also becoming more efficient. Net profit even increased by 15 percent to €1.9 billion.
Source: Financial data
Cash flow also developed very positively. Both operating cash flow and free cash flow turned significantly positive compared to the same quarter last year. They increased by 334 and 236 percent, respectively. This is due, among other things, to lower restructuring payments and lower payments for share-based compensation. Thanks to strong cash generation, SAP was able to announce a new share buyback program with a volume of up to €10 billion over two years. If the announced forecast is to be believed, these developments could continue.
SAP forecast for 2026
SAP expects very strong growth in its cloud business in 2026. Cloud revenue is expected to rise to between €25.8 billion and €26.2 billion. This would represent an increase of 23 to 25 percent at constant exchange rates compared to €21 billion in 2025. Combined cloud and software revenue is also expected to grow significantly, reaching €36.3 to €36.8 billion, up from €32.5 billion in the previous year. Earnings are also expected to increase. Operating profit (non-IFRS) is expected to range from €11.9 to €12.3 billion. In 2025, this figure was still €10.4 billion, which corresponds to growth of 14 to 18 percent at constant currencies. Free cash flow is also expected to increase to around €10 billion, up from €8.2 billion in 2025.
Nevertheless, there is one downside: Given the current cloud order backlog, growth is expected to slow slightly in 2026, after reaching 25 percent (currency-adjusted) in 2025. It is also strategically important that overall revenue growth is expected to accelerate further through 2027, while operating costs are expected to rise by only 80 to 90 percent of revenue growth. The exchange rate remains a risk factor. Assuming a dollar exchange rate of USD 1.13 per euro, currency effects could have a noticeable impact on growth in 2026, particularly in the first quarter. In fact, with current rates at 1.16, it is clear that there will be even more headwinds here.
Source: Sales and Margin forecast
In contrast, analysts expect SAP to enjoy clear and sustained growth in the coming years. The group is expected to increase its revenue continuously and with increasing momentum. From 2026 onwards, growth is expected to accelerate, particularly due to the strong cloud business and the ongoing migration of existing customers. The estimates for profits are even more optimistic. Here, analysts expect results to rise significantly over several years. Following a strong jump in earnings, they continue to forecast double-digit growth rates for earnings per share. The reason for this is the assumption that SAP will benefit from economies of scale in the cloud business, manage costs in a disciplined manner, and further expand its operating margin.
Key figures for SAP from the HGI analysis
The High-Growth Investing analysis rates SAP as a solid, growth-oriented company with a stable financial base. In the HGI analysis, SAP shares are rated 10 out of a possible 18 points and have regularly been considered top scorers. The low level of debt and favorable valuation are particularly convincing. The PEG ratio of around one signals that SAP could be attractively valued in relation to its growth and earnings potential. The same applies to the EV/sales ratio of just over 5.
Source: HGI Score
Another positive factor is that the gross margin is very high at over 73 percent, which underscores the strong profitability of the cloud and software business. However, a score of over 75 percent would have been necessary to achieve full marks. The stock therefore narrowly missed out on a full three points.
Revenue growth in recent years has shown an upward trend, driven primarily by increasing demand for cloud services. However, at 7.7 percent for the last 12 months, growth is too low to be considered high growth. On the other hand, there has been historical consistency. Nevertheless, no points were awarded.
Source: Revenue & Revenue Growth
The same applies to the Rule of 40 score, which combines growth and profitability. At around 30 percent, it's a good value, but there's room for improvement. The only moderate growth, in particular, is having a dampening effect.
Valuation of SAP Stock
From a valuation perspective, SAP currently appears only moderately valued. The expected price-to-earnings ratio (P/E ratio) is 24 and seems reasonable for an established, profitable software company with a deep competitive moat. The enterprise value to free cash flow (EV/FCF) ratio is similarly high at 23, reflecting the company's strong cash flow generation.
Source: Key metrics
With a dividend yield of around 1.5 percent, investors receive a small but stable payout in addition to the expected growth. This growth, in turn, has been impressive over the last 20 years.
Source: SAP Dividend history
Revenue and profit are also expected to continue their upward trend. Analysts forecast a revenue increase of around 10 percent for 2026, while net profit is expected to rise by approximately 15 percent. The combination of a moderate valuation, steady revenue growth, and above-average profit growth makes SAP shares attractive to investors seeking both stability and growth potential. Furthermore, a look at the historical valuation suggests that the stock could once again be considered undervalued.
Source: StocksGuide Charts
SAP stock was frequently traded at a premium. However, for a long time, the stock could also be acquired at P/E ratios below 20. At that time, investors were skeptical about the success of the transformation into a SaaS provider. Today, the current P/E ratio of 26 is again below the historical average of 30, even though revenue growth has not changed significantly over the years.
A key reason for the historically moderate valuation of SAP shares is the growth rate. While SAP is growing solidly, especially in the cloud segment, its revenue growth of around 10 percent per year at the group level is rather weak compared to pure cloud or SaaS growth companies. Large, mature companies are generally valued lower than small, fast-growing software startups because market expectations are limited. Another factor is the business model itself, as SAP still generates a portion of its revenue from traditional license agreements and software support, which are growing slowly or even declining. Even though cloud revenues are growing strongly, this growth is partially offset by the decline in traditional licensing business, making the overall dynamic less attractive to investors. This effect will naturally diminish over time.
Added to this are the company's size and complexity. SAP is a very large corporation with several hundred thousand customers worldwide, complex ERP systems, and an extensive on-premise and cloud infrastructure. Such systems are costly to implement and maintain, which limits scalability and short-term profit growth. Larger companies also often have less room for rapid margin increases, as their cost structures are already highly optimized. Market-specific risks also influence the valuation. SAP operates in a highly competitive international environment with competitors such as Oracle, Salesforce, and dynamic startups. Technological change, regulatory requirements, and exchange rates could create headwinds. Investors take these uncertainties into account when valuing the stock. The issue of technological change, in particular, has recently come into focus. So-called "disruption fears" from artificial intelligence are increasingly raising doubts about SAP's future vision. Many investors are wondering to what extent AI agents could replace traditional software solutions or ERP systems. AI can indeed support certain processes within SAP systems, for example, by automatically checking invoices, consolidating data from various sources, or generating analyses. This reduces manual effort for companies and can increase efficiency. However, the idea that AI could completely replace SAP is, in my opinion, unrealistic. SAP systems are highly complex, highly customized, and deeply embedded in business processes. While AI could automate individual tasks, suggest new functions, or accelerate data analysis, it cannot replace the entire ERP software or the associated business processes. Crucial aspects remain implementation, customization, compliance, interfaces with other systems, and change management within companies—tasks that require human expertise. Nevertheless, fears of disruption are impacting valuations. However, history also shows that many things repeat themselves. More than ten years ago, the cloud threatened the traditional licensing business. Consequently, SAP's stock, as a license seller, traded weakly. Despite this, the transformation of the business model was successfully implemented. Something similar could happen with AI and AI agents.
Conclusion on SAP Stock
SAP is in the midst of a successful transformation from a traditional licensing provider to a cloud-oriented software company. The company benefits from long-term megatrends such as digitalization, automation, and cloud computing. This is reflected in strong cloud growth and increasing profitability. At the same time, the stock remains moderately valued, as investors are cautiously pricing in the growth rate, market complexity, and technological uncertainties – such as those arising from AI. The increasing integration of AI will not replace SAP, but rather should increase the efficiency of existing systems and enable new functionalities.
The combination of stable, recurring revenues, a solid financial foundation, and a clear growth strategy could therefore make SAP attractive in the long term. Thus, investors see an established, profitable market leader with further growth potential and a strong position in a dynamic, global market environment.
Source: Target price
Analysts share a similar view. The vast majority are optimistic about SAP. Around 73 percent recommend buying the stock, while 22 percent advise holding, and only 5 percent see a sell signal. The average price target is €261.63, with the current price at €173.74. This implies a potential upside of over 51 percent. These assessments are based on the expectation that SAP will further expand its cloud business, increase profitability, and that the long-term growth trends of digitalization and automation will boost revenue.
Source: Earnings per Share
SAP is already attractively valued today, provided growth remains sustainable. In the long term, the P/E ratio could fall to 13 by 2030. Those who find the stock interesting but still want to build in a risk buffer can set up an alert in StocksGuide. I consider a P/E ratio below 20 to be an interesting indicator for re-evaluating the stock.
The author and/or persons or companies associated with StocksGuide own or may own shares of SAP. This article represents an expression of opinion and does not constitute investment advice. Please note the legal information.
