VALUATION HIGHLIGHTS

1. Cloud subscriptions constitute 77% of the Trefis price estimate for SAP's stock.
2. Software Support constitutes 19% of the Trefis price estimate for SAP's stock.

WHAT HAS CHANGED?

Latest Earnings: Q4 and Full Year 2025

SAP reported mixed fourth-quarter results for fiscal 2025, with revenue of €9.68 billion (up 9% at constant currencies) and non-IFRS EPS of €1.62, missing analyst consensus estimates due to a higher volume of large deals with longer ramp periods. Despite the quarterly miss, full-year performance was robust as total revenue reached €37 billion (up 11% at constant currencies) and non-IFRS operating profit grew 28% to €10.4 billion. Growth was primarily fueled by the Cloud ERP Suite, which surged 32% for the year, and a record cloud backlog of €77 billion that provides significant visibility into 2026.

Note: SAP's FY'25 ended on December 31, 2025.

Major Share Repurchase and AI Efficiency Pivot

In January 2026, SAP announced a new €10 billion share repurchase program, signaling strong confidence in its free cash flow trajectory, which reached €8.2 billion in 2025. This capital return strategy is paired with an aggressive internal restructuring designed to achieve €2 billion in cost efficiencies through AI adoption by 2028. The company is transitioning from simple cloud migration to "agentic AI" orchestration, integrating autonomous AI agents across its Business Suite to automate complex end-to-end workflows in finance and supply chain.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of SAP's value that present opportunities for upside or downside to the current Trefis price estimate:

Cloud ERP Suite

• Large-Scale Cloud Migration: SAP's "RISE with SAP" program continues to convert the legacy installed base, with cloud revenue growing 26% in 2025. If SAP successfully migrates the remaining 60% of its on-premise support base faster than the current trajectory, there is significant upside to recurring revenue margins. However, geopolitical uncertainty and longer deal cycles for mission-critical ERP remains a downside risk.
• Business AI Monetization: Two-thirds of Q4 cloud orders now include AI components. SAP's ability to upsell premium AI-enabled tiers, such as the Joule copilot and new agentic orchestration features arriving in H1 2026, represents a critical margin expansion lever. Failure to demonstrate tangible ROI for customers could lead to slower-than-expected adoption of these high-margin features.

For additional details, select a division from the interactive Trefis split for SAP at the top of the page.

BUSINESS SUMMARY

SAP is the global leader in enterprise resource planning (ERP) software, providing mission-critical applications that manage finance, human resources, supply chain, and customer experience for over 400,000 customers. The company is currently executing a multi-year strategic transition from a legacy on-premise licensing model to a cloud-based subscription model. SAP's value proposition centers on its "Clean Core" strategy and the integration of "Business AI," which leverages the company's vast repository of structured enterprise data to provide context-aware automation and insights that standalone AI tools cannot replicate.

SOURCES OF VALUE

The Cloud and Software segment remains the primary engine of value, driven by high switching costs and the transition to recurring subscription revenue.

Dominant ERP Installed Base

SAP's software handles approximately 87% of total global commerce, creating a massive "moat" through deep integration into complex business processes. This installed base provides a steady stream of high-margin support revenue and a captive audience for cloud migration.

Accelerated Cloud Operating Leverage

As the cloud business scales, SAP is seeing significant margin improvement. The cloud gross margin grew to roughly 75% in 2025 as the company optimized its delivery infrastructure. This shift from transactional licenses to predictable, multi-year subscriptions enhances the company's valuation multiple and cash flow stability.

KEY TRENDS

Enterprise Agentic AI Transition

The industry is moving from simple generative AI "chat" interfaces to autonomous agentic AI that can execute multi-step business workflows. SAP is positioning itself at the forefront of this trend by embedding agents directly into the Business Suite, orchestrated through Joule, to handle tasks like autonomous invoice processing and predictive inventory management.

Operational Scalability and Cost Discipline

Following a massive workforce transformation in 2024 and 2025, SAP is focusing on "operating profit growth ahead of revenue growth." The company is leveraging its own AI tools to automate internal G&A functions, targeting a record free cash flow of €10 billion in 2026.