Last Update 06 Feb 26

Fair value Decreased 0.74%

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

<<< To see my other narratives, please scroll up and klick on Tokyo (next to my profile picture) >>>

If you enjoy my writing you can find more on the link in my BIO!

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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 248 EUR, means SAP trades at 9% under 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)

<<< To see my other narratives, please scroll up and klick on Tokyo (next to my profile picture) >>>

If you enjoy my writing you can find more on the link in my BIO!

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