Sap, German hi tech plays its cards on cloud and artificial intelligence

A single number always says - almost - nothing about corporate business. A fairly long time series, on the other hand, at least succeeds in offering suggestions. This is also the case with Sap, which recently became Europe's largest company by capitalisation. Well: browsing through the charts of the Bloomberg terminal, one definite trend stands out. The increasing dedication to the world of cloud computing, with the concomitant increase in the latter's weight in total revenues.

Thus, ten financial years ago and according to the Bloomberg terminal, the information cloud had generated about 11% of sales. Subsequently, the incidence of cloud computing on group sales exceeded 20% (2018) to reach 43.8% in 2023. Last year, finally, the world of Software as a service (Saas) or Platform as a service (Paas) up to Infrastructure as a service (Iaas) settled at 50.16% of turnover. At the same time, on the one hand, the area of Software Licenses & Support - which a decade ago was king - has ended up more in the background; and, on the other hand, the service offering itself has lost weight, albeit to a lesser extent. More precisely, the latter was worth 17.2% in 2015 and now hovers around 12.7%. The former segment, on the other hand, had generated 71.2% of revenues in 2015 and is currently worth just over 37% (2024). In short: the commitment to cloud computing is in the numbers. True! According to Statista, the domination of the cloud world - at the end of 2024 - is the prerogative of Aws (Amazon) with 30% of the market followed by Microsoft's Azure (21%) and Google Cloud (12%). Then gradually the others: from Alibaba to Oracle to Saleforce and Ibm. That is: Sap does not appear among the top positions. That said, however, according to cloudwars.com Sap is in fifth place among vendors in the sector with the greatest global influence. The IT cloud is, therefore, at the centre.

Yes, in the centre. But what is the real object of the group? Sap - broadly speaking - divides its activity into three major areas. The first is - precisely - the cloud. This, in turn, is divided into Saas, Paas and Iaas. These are the three levels in which the cloud can operate. In Software as a Service, the group offers web-ready business apps that run on its servers. With Platform as a Service, on the other hand, customer developers are given an online environment to create customised applications. Finally, in Infrastructure as a Service, Sap leases virtual servers and basic resources, giving full technical control to the user to install and manage its software. The focus, in these areas, is on the first two modalities (Saas and Paas), which, on the one hand, generated 4.9 billion in revenues (9.01 the total turnover) in the first quarter of 2025; and to which, on the other hand, the flagship product of Enterprise resource planning (Erp) software contributed a large part. The second area, however, is Software licences & support. Here, the company sells licences to install its software directly on customers' servers ('on-premise' model). Together with the licence, then, an ongoing 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. The third area, finally, comprises various activities: from consulting and training to implementation and customised technical user support. A world which - between last January and March - achieved 1.01 billion in sales.

If these are the descriptions of Sap's business and historical trend, what was the consolidated performance in the last quarter? The hi tech group reported rising turnover and profitability. In particular, the top line was up 12% compared to the same period in 2024 (+11% at constant exchange rates). Adjusted earnings per share, for its part, stood at EUR 1.44, up 79% when compared to the EPS of a year earlier. On closer inspection, not both income statement numbers exceeded estimates. The consensus was beaten with regard to profitability but not with regard to turnover. The informed cloud division itself recorded growth below market forecasts. One might say: an environment that - in the session immediately following the publication of the figures - caused the share price to plummet on the stock exchange. Far from it! Sap jumped 10.62% on 23 April. How come? Because - it is the indication of the experts - the group, despite the difficulties related to the macroeconomic environment in the wake of Donald Trump's tariffs - has kept the bar straight with regard to the outlook for 2025. The company confirmed the operating profit (non-IFRS) between 10.3 and 10.6 billion (up 26% - 30% at current currencies). Not only that. Among other things, the company indicated, on the one hand, that the drop point of Cloud & Softtware's turnover should be between 31.1 and 33.6 billion; and, on the other hand, that free cash flow is expected to be around 8 billion. True! Group CFO Domik Asaf emphasised that 'reiterating the guidelines for the entire year was not easy'. And, nevertheless, the fact that the German multinational realised the move was appreciated by investors. So much so that, on the stock exchange, since the beginning of the year the Frankfurt stock has risen - according to the Bloomberg terminal - by 15.2%. Over the year, on the other hand, the increase is 53.2%. Finally, looking at performance over the five-year period, the stock's rise is 124.8%. In the face of such dynamics, the multiples are not low. The ratio of price to non-GAAP earnings - according to Seeking Alpha - is 43.2 times compared to the median value of the reference sector, which is 22.14 times. The same indicator consisting of - at the numerator - the share price and - at the numerator - cash flows is 53 versus 18 for the reference sector. In other words: the share price is 'stretched'. Of course! The so-called 'momentum' is strong given - precisely - the stock market performance. Furthermore, the margins, e.g. in terms of operating profitability, are high (25.9% in the last quarter). This shows the group's ability to turn price increases into profits. Having said that, however, the indications on multiples should induce the do-it-yourselfer to be very careful when handling the stock in question.

Also because, evidently, one has to take a look at the Artificial Intelligence (AI) front, which - like it or not - is always at the centre of operators' strategies and, consequently, has the power to impact on stock trends. With regard to the topic at hand, Sap keeps a low profile compared to its US competitors. Without sensationalist launches, the group is integrating 'Joule' (the virtual assistant) into existing solutions and workflows: human resources, purchasing and finance. Thus - as some experts indicate - if the marked course is not abandoned, Joule could become an interesting lever for customer loyalty and upselling (i.e. proposing more expensive or advanced versions to the customer). However, competition is fierce. An example? The world of Erp. Oracle with its Oracle fusion Erp augmented by Ia offers - according to insiders - an interesting solution for companies. The same goes for Finance & Operations (from Microsoft) to which the Copilot Ai has been added. These solutions challenge products such as, for example, Sap S/4HANA Cloud with Joule, which is Sap's next-generation intelligent Erp. In short: the gaze must also turn to market dynamics. An area where, moreover, Sap's slow and steady approach with Ia - in the face of possible new hype fuelled by other groups - could make the German multinational appear not so much in the Artificial Intelligence gold rush.