In the world of enterprise software, few names carry as much weight as SAP. What started as a small German startup has evolved into the largest publicly listed company in Europe by market capitalization. With deep roots in ERP (Enterprise Resource Planning) and a steady evolution through waves of technological change, SAP now finds itself at the forefront of AI-powered business transformation. This article explores how SAP got here, what challenges it faced, and what the next decade may hold.
The Origins: A Revolutionary Idea in 1972
SAP was founded in 1972 by five former IBM engineers—Dietmar Hopp, Hasso Plattner, Claus Wellenreuther, Klaus Tschira, and Hans-Werner Hector. Frustrated by IBM’s resistance to real-time data processing, they left to build a company focused on standard software for managing business processes. The idea was radical at the time: offer off-the-shelf software configurable for many businesses.
Today, most founders are retired. Hasso Plattner remains involved as Chairman of the Supervisory Board and continues to shape SAP’s strategic direction.
Why SAP Succeeded
SAP’s early success came from building integrated systems that allowed enterprises to manage finance, logistics, procurement, and HR from a single platform. This replaced siloed systems and reduced complexity dramatically. For customers, this meant higher efficiency, better decision-making, and scalable growth.
As SAP's software became deeply embedded in business-critical operations, switching to a competitor became both costly and risky—cementing SAP's economic moat.
The Salesforce Factor: A Missed Opportunity?
Despite its dominance, SAP wasn’t immune to disruption. As the cloud revolution took off, SAP was slow to adapt. This allowed Salesforce, a cloud-native CRM provider, to gain a strong foothold in customer relationship management.
Is Salesforce a threat? To some degree, yes—but only within a narrow scope. Salesforce leads in CRM, but SAP still owns the broader enterprise stack—ERP, supply chain, procurement, compliance. So while Salesforce took a slice, SAP continues to serve the full enterprise menu.
Technological Evolution: From Mainframes to AI
SAP has gone through several major technological transitions:
- R/2: Mainframe-based ERP
- R/3: Client-server architecture in the 1990s
- SAP HANA: In-memory database platform launched in the 2010s
- S/4HANA Cloud: Modern cloud-first ERP platform
- Today: Embedding AI and ESG (Environmental, Social, Governance) into every module
Each transformation led to short-term market uncertainty but long-term growth. Investors who stayed patient through these waves often benefited significantly as SAP’s stock price recovered and reached new highs.
Leadership Spotlight: Christian Klein
When Christian Klein became sole CEO in 2020 at just 39 years old, skepticism was high. A company veteran who joined as a student intern, he rose steadily through the ranks, later serving as COO and briefly as co-CEO. Insiders say he was groomed for the role, with strong backing from Hasso Plattner.
His early months were rocky—communication issues, concerns over strategic direction, and the complex Qualtrics spin-off raised doubts. Critics questioned his age, experience, and international exposure.
Yet Klein has proved resilient. He streamlined SAP’s focus, pushed hard for cloud adoption via RISE with SAP, strengthened partnerships with hyperscalers like Microsoft and AWS, and made AI and sustainability central to the roadmap. Today, Klein is seen as a stabilizing force, though internal and market pressure remains high. His seat may not be entirely safe, but for now, he's firmly in control.
Workforce Reduction: Efficiency or Risk?
In 2023, SAP announced a headcount reduction initiative as part of its restructuring. The accompanying voluntary severance program was highly attractive, leading to more departures than initially expected.
Market reactions were mixed. Investors largely viewed it as an efficiency gain, helping SAP redirect resources into AI and cloud initiatives. The stock responded positively over the next 12 months. However, some analysts and insiders warned of potential knowledge drain, especially in customer-specific configurations. SAP countered this by expanding re-skilling programs and relying more on automation and partner networks.
What SAP Is Working on Now
SAP is focused on:
- Embedding AI across its suite for forecasting, automation, and smart alerts
- Expanding its Green Ledger for real-time ESG tracking
- Driving cloud migration of legacy customers
- Scaling industry-specific solutions in manufacturing, life sciences, and the public sector
What to Expect from SAP: Short, Medium & Long Term
0–3 Years
- Full integration of generative AI in SAP modules
- ESG reporting becomes standard for compliance and competitiveness
- Cloud revenues overtake traditional software licenses
3–5 Years
- Completion of most cloud migrations
- Greater automation in financial close, supply chain planning, and HR
- Deeper co-development with hyperscalers and consulting partners
5–10 Years
- Emergence of autonomous ERP: AI will not just suggest, but act
- Real-time regulatory compliance and sustainability embedded by design
- SAP becomes the digital operating system for intelligent enterprises globally
Conclusion: A Stronger SAP in 2035?
If SAP maintains its current course, executes on AI, and completes the cloud transition, the answer is yes. It will not only remain Europe’s most valuable company—it may become one of the most strategically indispensable technology providers worldwide.
Salesforce may keep leading in CRM, but SAP continues to run the core business processes of the world’s largest corporations. With renewed focus, smart leadership, and bold investments, SAP’s next chapter looks stronger than ever.
Valuation
Over the next 5 years I calculate with (actual values from 04.05.25, price/shr at 266 EUR):
Revenue Growth p.a.: 9% (Currently at 10,7%) - becasue last 10 years average was 6%. I estimate extra 3%, since transition to SaaS is mainly done and gives potential for continuous price increases, which could be justified by further AI features.
Profit Margin: 18% (currently at 12,3%) - because transiton to cloud was very cost intensive, which keep margin during last 3 year below 10%, before that SAP ranged between 15-20% of profit margin. Even 20% could be reached on the long run.
Future PE: 40 (currently at 54,2) - end 2024 SAP had an PE of 90, this come already down significantly, but with the respect to forecasted revenue growth, more then PE of 40 is not reasonable.
Interest rate: 6,06% (same as current)
Wich leads to an FV of 177 EUR, means SAP trades at 50% over fair value.
I calculate the internal rate of return (IRR) of an investement at current stock price on a period of 5 years. At current value I get 4,4% annual return on share price, including the dividends 5,3%.
This is significatnt below my expectation of 10%.
Series: The biggest EU stocks:
#1 – SAP
#2 – Novo Nordisk
#3 - ??? (coming soon)
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Disclaimer
The user Tokyo has a position in XTRA:SAP. Simply Wall St has no position in any of the companies 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 author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does 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 the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
