Sap, the German hi-tech firm, is banking on the cloud and artificial intelligence

A single figure always – or almost always – tells us nothing about a company’s business. A sufficiently long time series, on the other hand, can at least offer some insights. This is also the case with SAP, which recently became Europe’s largest company by market capitalisation. Well, whilst ‘browsing’ through the charts on the Bloomberg terminal, a distinct trend catches the eye. An ever-increasing focus on cloud computing, with a corresponding rise in its share of total revenue.

Thus, ten financial years ago, according to the Bloomberg terminal, cloud services had generated around 11 per cent of sales. Subsequently, the share of cloud computing in the group’s turnover exceeded 20 per cent (2018), rising to 43.8 per cent in 2023. Finally, last year, the combined revenue from Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) stood at 50.16 per cent of total turnover. At the same time, on the one hand, the Software Licences & Support segment – which dominated the market a decade ago – has taken a back seat; and, on the other, the service offering itself has lost ground, albeit to a lesser extent. More specifically, the latter segment accounted for 17.2% in 2015 and now stands at around 12.7%. The first segment, by contrast, generated 71.2 per cent of revenue in 2015 and currently accounts for just over 37 per cent (2024). In short: the commitment to cloud computing is reflected in the figures. True! According to Statista, by the end of 2024, AWS (Amazon) will dominate the cloud market with a 30 per cent share, followed by Microsoft’s Azure (21 per cent) and Google Cloud (12 per cent). Then, further down the list, come the other players: from Alibaba to Oracle, right through to Salesforce and IBM. In other words: SAP does not feature amongst the top positions. That said, however, according to cloudwars.com, SAP ranks fifth amongst the sector’s vendors with the greatest global influence. Cloud computing is, therefore, at the centre of attention.

Yes, at the heart of it. But what is the group’s actual corporate purpose? SAP – broadly speaking – divides its business into three main areas. The first is – precisely – the cloud. This, in turn, is divided into SaaS, PaaS and IaaS. These are the three levels at which cloud computing can operate. Under Software as a Service, the group offers ready-to-use web-based business applications that run on its servers. Under Platform as a Service, on the other hand, the client’s developers are provided with an online environment in which to create bespoke applications. Finally, under Infrastructure as a Service, SAP rents out virtual servers and basic resources, giving users full technical control to install and manage their own software. The focus in these areas is on the first two models (SaaS and PaaS) which, on the one hand, generated 4.9 billion in revenue in the first quarter of 2025 (out of a total turnover of 9.01); and to which, on the other hand, the flagship Enterprise Resource Planning (ERP) software product contributed significantly. The second area, however, is Software Licences & Support. Here, the company sells licences to install its software directly onto customers’ servers (the ‘on-premise’ model). Along with the licence, a continuous technical support contract is offered, which includes updates, security patches and assistance. This division generated 2.9 billion in turnover in the first quarter of 2025. Finally, the third area encompasses various activities: from consultancy and training to implementation and personalised technical support for users. This sector achieved sales of 1.01 billion between January and March this year.

Given these descriptions of SAP’s business and its historical trend, what, then, was the consolidated performance in the last quarter? The hi-tech group reported an increase in turnover and profitability. In particular, turnover rose by 12% compared with the same period in 2024 (+11% at constant exchange rates). Adjusted earnings per share, for its part, stood at €1.44, up 79% compared with the EPS of a year earlier. On closer inspection, not both figures in the income statement exceeded estimates. The consensus was beaten in terms of profitability but not in terms of turnover. The cloud computing division itself recorded growth below market forecasts. One might think that this situation – in the trading session immediately following the publication of the figures – caused the share price to plummet on the stock market. Far from it! On 23 April, SAP’s share price surged by 10.62 per cent. Why is that? Because – as experts point out – the group, despite the difficulties linked to the macroeconomic environment in the wake of Donald Trump’s tariffs, has stayed on course with its outlook for 2025. The company confirmed its operating profit (non-IFRS) at between 10.3 and 10.6 billion (up 26 per cent–30 per cent at current exchange rates). But that’s not all. Among other things, the company has indicated, on the one hand, that revenue for Cloud & Software is expected to be between 31.1 and 33.6 billion; and, on the other hand, that free cash flow is expected to be around 8 billion euros. That’s right! The group’s chief financial officer, Domik Asaf, emphasised that ‘reaffirming the full-year guidance was not easy’. Nevertheless, the fact that the German multinational went ahead with the move was welcomed by investors. So much so that, on the stock market, the share price in Frankfurt has risen by 15.2 per cent since the start of the year – according to the Bloomberg terminal. Over the year, however, the increase stands at 53.2 per cent. Finally, looking at the five-year performance, the rise in the share price stands at 124.8 per cent. Given this trend, the multiples are not low. The non-GAAP price-to-earnings ratio – according to Seeking Alpha – stands at 43.2 times, compared with the sector median of 22.14 times. The same indicator – with the share price in the numerator and cash flows in the denominator – stands at 53, compared with 18 for the sector benchmark. In other words: the share price is ‘stretched’. Of course! The so-called ‘momentum’ is strong, given – precisely – its stock market performance. Furthermore, profit margins, for example in terms of operating profit, are high (25.9 per cent in the last quarter). This demonstrates the group’s ability to turn price increases into profits. That said, however, the figures relating to valuation multiples should prompt the DIY investor to exercise great caution when trading this particular share.

This is also because, clearly, we need to take a look at the field of Artificial Intelligence (AI), which – like it or not – is always at the heart of operators’ strategies and, consequently, has the power to influence share price trends. On this subject, SAP is keeping a low profile compared to its US competitors. Without any sensationalist launches, the group is integrating ‘Joule’ (the virtual assistant) into existing solutions and workflows: human resources, procurement and finance. Thus – as some experts suggest – if this course is not abandoned, Joule could become a valuable tool for customer retention and upselling (that is, offering customers more expensive or advanced versions). However, competition is fierce. An example? The world of ERP. Oracle, with its Oracle Fusion ERP enhanced by AI, offers – according to industry insiders – an attractive solution for businesses. The same applies to Finance & Operations (by Microsoft), to which Copilot’s AI has been added. These are solutions that challenge products such as, for example, SAP S/4HANA Cloud with Joule, which is SAP’s new-generation intelligent ERP. In short: attention must also be paid to market dynamics. This is an area where, moreover, SAP’s slow and steady approach to AI – in the face of any new hype fuelled by other groups – could make the German multinational appear not quite so much a part of the artificial intelligence gold rush.