Last Update 21 Dec 25
Fair value Increased 2.66%SAP Cloud Transition And Legal Overhangs Are Expected To Shape Returns
Analysts have modestly lifted their price target for SAP, raising fair value to approximately $223 from about $217, as they factor in stronger expected revenue growth and higher future earnings multiples despite slightly lower margin assumptions. This view is supported by a series of recent Overweight and Outperform ratings along with upward target revisions.
Analyst Commentary
Recent Street research on SAP has been broadly constructive, with several firms nudging price targets higher to reflect confidence in the company’s cloud transition and revenue growth trajectory. JPMorgan, for example, lifted its euro based target while reiterating a positive stance, citing continued strength in the core business and supportive demand trends.
Other major houses have echoed this upbeat view, emphasizing that SAP’s pipeline and macro commentary point to further revenue acceleration next year, even as near term guidance reflects some conservatism. Upgrades from Neutral to Outperform highlight the perception that the recent share price pullback may have overshot fundamentals, creating what some see as an attractive entry point given the company’s resilient earnings profile.
At the same time, not all commentary has been unreservedly bullish, and some targets have been trimmed at the margin as analysts incorporate more cautious assumptions for upcoming quarters and factor in the impact of softer software license trends.
Bearish Takeaways
- Bearish analysts have reduced their price targets modestly, signaling concern that current valuation already prices in a best case cloud growth scenario, leaving limited room for upside if execution is merely solid rather than exceptional.
- Some see the Q4 outlook as underwhelming relative to prior expectations, raising questions about the near term growth cadence and the risk that revenue growth may decelerate before re accelerating, which could pressure earnings multiples.
- The ongoing decline in traditional software revenue is viewed as a headwind that may not be fully offset by cloud momentum in every quarter, introducing volatility to reported growth and heightening the risk of negative estimate revisions.
- There is also concern that, despite long term opportunity in cloud conversion, the pace of migration could prove uneven in a mixed macro environment, which might challenge SAP’s ability to consistently expand margins while investing for growth.
What's in the News
- SAP is considering whether to renew its nearly $4.5 billion takeover pursuit of accounting software firm BlackLine after an initial $66-per-share bid was rejected earlier this year, with no current talks under way (Reuters and Bloomberg).
- Multiple BlackLine shareholders, including Ananym Capital, Tensile Capital, and Sheffield Asset Management, are pressuring the company to explore a sale following reported takeover interest from SAP (Bloomberg).
- SAP is preparing to offer formal concessions to the European Commission to resolve an EU antitrust probe into its software support practices, aiming to avoid a potentially significant fine (Reuters and Bloomberg).
- The U.S. Supreme Court has declined to hear SAP’s appeal in an antitrust case brought by Teradata, allowing litigation over alleged tying of SAP applications to its database to proceed (Reuters).
- Nvidia and Deutsche Telekom plan a roughly EUR 1 billion AI-focused data center in Germany, with SAP set to be a key customer of the facility as part of broader European AI infrastructure expansion (Bloomberg).
Valuation Changes
- Fair Value: increased slightly to approximately $223 from about $217, reflecting modestly stronger long term expectations.
- Discount Rate: edged up marginally to around 6.37 percent from roughly 6.35 percent, implying a slightly higher required return.
- Revenue Growth: risen modestly to about 10.9 percent from roughly 10.3 percent, signaling a small upgrade to the top line growth outlook.
- Net Profit Margin: reduced moderately to around 17.6 percent from about 18.9 percent, indicating a more cautious view on profitability.
- Future P/E: increased slightly to roughly 35.4x from around 33.3x, pointing to a somewhat higher assumed earnings multiple.
Key Takeaways
- Intensifying competition from cloud-native and specialized SaaS solutions threatens SAP's pricing power, differentiation, and market share, reducing cross-selling potential and revenue growth.
- Migration to subscription cloud and rapid AI integration bring execution risks, cost pressures, and complexity, negatively impacting margins and long-term scalability.
- Robust cloud growth, Business AI adoption, and expanding global presence position SAP for margin expansion and long-term earnings improvement through digital transformation and integrated enterprise solutions.
Catalysts
About SAP- Provides enterprise application and business solutions worldwide.
- Industry-wide acceleration in cloud-native and low/no-code software is increasing competition, reducing technological barriers and threatening the differentiated value that SAP's legacy platform provides; this could erode SAP's pricing power and slow future revenue growth as more enterprises pursue nimble alternatives tailored to specific business needs.
- The rapid proliferation of best-of-breed SaaS solutions is undermining demand for SAP's traditionally comprehensive ERP suite, as clients increasingly favor leaner, specialized systems over monolithic platforms; this competitive shift could materially pressure SAP's cross-selling opportunities and lead to market share loss, negatively impacting top-line growth over the next several years.
- The ongoing customer migration from on-premise to cloud subscriptions, although supportive of recurring revenues, creates significant short-to-medium term headwinds due to the deferred timing of revenue recognition and increased hosting and onboarding costs, compressing both revenue growth rate and net margins at a time when expectations for margin expansion are high.
- SAP faces increasing execution risk as it rushes to integrate AI and next-generation cloud capabilities into its portfolio; any delays, cost overruns, or failure to deliver robust business outcomes could not only increase operating costs but also drive higher customer churn as demanding clients seek more agile, innovative competitors, directly threatening future earnings growth.
- Rising geopolitical fragmentation and aggressive data sovereignty regulations present a growing and expensive hurdle for SAP's traditional model of global-scale deployments; the need for regionally customized solutions increases compliance costs and complexity, threatening scalability and putting downward pressure on long-term margins and earnings.
SAP Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- This narrative explores a more pessimistic perspective on SAP compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
- The bearish analysts are assuming SAP's revenue will grow by 10.3% annually over the next 3 years.
- The bearish analysts assume that profit margins will increase from 18.2% today to 18.9% in 3 years time.
- The bearish analysts expect earnings to reach €9.1 billion (and earnings per share of €7.79) by about August 2028, up from €6.5 billion today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 33.3x on those 2028 earnings, down from 44.5x today. This future PE is greater than the current PE for the US Software industry at 30.4x.
- Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.35%, as per the Simply Wall St company report.
SAP Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The rapid growth of SAP's cloud business, with cloud revenue increasing by 28% and the Cloud ERP Suite expanding at over 30% for 14 consecutive quarters, suggests enduring customer demand that could drive overall revenue and margin expansion if these trends persist.
- SAP's aggressive investment and early traction in Business AI, including the deployment of intelligent agents across business functions and successful use cases with major customers, indicate long-term productivity gains and new upsell opportunities that have the potential to improve earnings and operating profit.
- The company's ability to achieve and sustain significant improvements in cloud gross margin (currently at 75.2% with a 1.8 percentage point increase year-on-year), mainly due to economies of scale and internal automation, points to robust net margin expansion through operating leverage in the years ahead.
- The strategic partnership with Alibaba and SAP's growing presence in high-potential regions such as China and APJ, combined with a strong and diversified geographic pipeline, could unlock new addressable markets and support sustained top-line growth if execution is successful.
- Ongoing digital transformation, sovereign cloud offerings, and the expansion of SAP's Business Data Cloud (BDC) initiative-already showing the potential to add materially to annual contract value-suggest strong long-term demand for integrated, secure, and data-driven enterprise solutions, bolstering recurring revenue and supporting higher valuation multiples over time.
Valuation
How have all the factors above been brought together to estimate a fair value?- The assumed bearish price target for SAP is €217.16, which represents two standard deviations below the consensus price target of €287.12. This valuation is based on what can be assumed as the expectations of SAP's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
- However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €345.0, and the most bearish reporting a price target of just €192.0.
- In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €48.2 billion, earnings will come to €9.1 billion, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 6.3%.
- Given the current share price of €250.1, the bearish analyst price target of €217.16 is 15.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
