SAP: When Expectations Collide with Transformation

SAP: When Expectations Collide with Transformation

Over the past days, SAP’s share price fell sharply—roughly 14% within a single week. At first glance, such a move suggests something has fundamentally gone wrong. A closer look at SAP’s Q4 2025 results, however, tells a very different story.

The disconnect is not between performance and strategy. It is between market expectations and how long large-scale transformations actually take.

What the Market Sees: A Timing Issue

Markets rarely react to absolute results; they react to deviations from expectations. In SAP’s case, the spotlight was not on revenue or profit, but on the Current Cloud Backlog, the near-term portion of future cloud revenues. While growth remained solid, it fell short of what many investors had priced in.

SAP addresses this directly in its quarterly statement:

“Large transformational deals with high cloud revenue ramps in outer years … negatively impacted fourth quarter constant currency current cloud backlog growth by approximately 1 percentage point.” (Q4 2025 Quarterly Statement)

In plain terms: the deals are large, strategic, and sticky—but the revenue arrives later. For short-term investors, “later” often looks like weaker.

What the Market Sees: Transition Friction

The revenue mix reinforces this perception. Cloud ERP continues to grow strongly, while legacy software licenses decline and infrastructure-related revenues shrink. To headline-driven markets, this does not look like acceleration. It looks like transition pain—and transitions rarely get rewarded in real time.

What SAP Is Really Delivering

Beneath the noise, the fundamentals are robust: cloud revenue up 23%, Cloud ERP Suite up 28%, non-IFRS operating profit up 28%, and free cash flow nearly doubled to €8.2 billion. This is not a company under stress—it is a company funding its transformation from strength.

Strategy vs. Sentiment

SAP is explicit that acceleration is a multi-year story:

“The significant Current Cloud Backlog growth in Q4 has laid a strong foundation for accelerating Total Revenue growth through 2027.” (Q4 2025 Quarterly Statement)

This aligns directly with the previously outlined Short / Medium / Long Term roadmap. The market focuses on the short term; SAP is managing for the next decade.

Conclusion

One company, two time horizons. For traders, uncomfortable. For long-term investors, decisive.

Valuation

Actual values (as of 05 Feb 2026): Current share price: €172

Revenue Growth (p.a.): 9%

(Current growth ~10%)

From 2020 to 2025, SAP achieved an average annual revenue growth of 6.1%. For the next five years, I assume a higher growth rate of 9% p.a., driven by the structural shift toward SaaS.

SAP has now reached a point where roughly 50% of revenues are generated from SaaS / Cloud (Cloud revenue ~€17.7bn), a segment currently growing at 9–10% annually. As the revenue mix continues to shift toward recurring cloud subscriptions, overall sales growth should structurally exceed the historical average of the license-heavy era.

Profit Margin: 23%

(Currently ~20%)

Over the past decade, SAP’s operating margin ranged between 12% and 20%. Following the restructuring program, total headcount was reduced from ~113,000 to ~105,000 employees. While headcount has since increased to ~111,000, most new hires are located in lower-cost regions.

I expect the completed restructuring and improved cost structure to contribute an additional ~3 percentage points to margins, lifting the sustainable operating margin to 23%.

Future P/E: 30

(Currently ~26.6)

Over the last ten years, SAP’s valuation ranged between 20x and 50x earnings, with the current multiple around 27x. I assume a future P/E of 30 over the next five years.

SAP is executing well through the transition from a license-based, on-premise model to a SaaS/cloud model. It is normal that growth rates temporarily moderate once a significant part of the transition is completed. The market currently focuses on this deceleration, which contributed to a sharp correction (–14% in one week, ~–40% over 12 months).

In addition, markets are increasingly cautious about a potential AI bubble, especially regarding hyperscalers with massive capital intensity. However, regardless of broader AI sentiment, SAP is structurally positioned as an AI winner. Customers want AI that enables real-world business decisions, embedded directly into mission-critical ERP workflows. SAP is uniquely positioned to monetize this, as customers will not migrate their core enterprise data to alternative platforms.

Once the market recognizes SAP’s AI monetization potential, a valuation premium is justified. A P/E of 30 reflects a reasonable premium and could even prove conservative.

Interest Rate / Discount Rate: 6.36%

(Assumed constant, in line with current level)

Fair Value (FV)

Based on the above assumptions, I derive a fair value of €247 per share, implying an estimated share price of €336 in 2031. At the current price of €172, SAP trades at approximately 32% below fair value.

Internal Rate of Return (IRR)

Based on a five-year holding period at today’s share price:

• IRR (price appreciation only): ~14.3% p.a.
• IRR including dividends: ~16.1% p.a.

This is significantly above my long-term return expectation of 10%, making SAP attractive on a risk-adjusted basis.

Now it’s up to you: Use the comments for your questions and thoughts.

Series: The biggest EU stocks:

• #1 – SAP
• #2 – Novo Nordisk
• #3 – ASML
• #4 – LVMH

Coming soon:

• #5 – Siemens
• #6 – Airbus

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