Software company SAP is experiencing strong momentum in the stock market. Since August 2022, when the stock dropped to 85 euros, its price has more than tripled, currently fluctuating around the 275 euros mark. SAP aims to establish itself at this new level.

In the past twelve months alone, the Walldorf-based company has gained about 70% on the stock exchange, compared to a 32% increase for the Dax overall. SAP's market capitalisation now exceeds 340 billion euros, and has grown so quickly that the Dax capping limit of 15% has become a constraint.

Concerns that SAP might turn its back on the German stock market were evidently significant enough that Deutsche Börse subsidiary Stoxx announced two new measures in February. In addition to the benchmark Dax index, where the 15% weight cap limit remains, there will now be an index without a limit, allowing SAP to fully reflect its size. Furthermore, there will be a version with a 20% cap, allowing ETFs to invest up to that threshold in a single stock.

Following the recent rally, SAP has come close to reaching the target price set by many analysts. Bloomberg reports an average twelve-month price target of 283 euros. Nonetheless, 23 analysts still recommend buying the stock, while only eight advise holding, and two suggest selling.

SAP appeals to shareholders with its tradition as a dividend-paying stock, and the company notes on its website that it has consistently paid a dividend since its IPO. While the dividend per share was just 0.01 euros in 1989, it had risen to 2.20 euros for 2023. Last week, SAP proposed a dividend of 2.35 euros per share for 2024, an increase of 0.15 euros or 6.8%.

The company has set a goal of distributing at least 40% of its adjusted after-tax group earnings (non-IFRS) from continuing operations to shareholders.

SAP's primary growth driver remains its cloud business, offering subscriptions for core software. In 2024, cloud revenue exceeded 17 billion euros, a currency-adjusted increase of 25% compared to the previous year. Total revenue grew by 10% to 34.2 billion euros. The Current Cloud Backlog, which represents contractually secured cloud revenues expected in the next twelve months, increased by 29% in Q4 2024 to over 18 billion euros, which a J.P. Morgan analyst described as „impressive“.

Although a slowing economy has dampened investment enthusiasm for many companies, software-related expenses remain unavoidable for executives. And this is also the case for SAP itself. Support for the widely used Business Suite 7 is set to end in 2027. Only customers committed to upgrading to a newer product generation can access extended transition options. However, the migration momentum has been sluggish so far. Analysts reported in late January, following meetings with CEO Christian Klein, that only 40% of customers had begun transitioning to the successor, S/4 Hana.

SAP aims to incentivise customers to switch by offering additional functionalities. Only the cloud-based solutions of the new product generation will provide full access to AI-powered developments. According to CEO Klein, AI applications were already included in half of SAP's cloud contract signings in Q4 2024.

In mid-February, SAP introduced further AI innovations. In the future, applications, AI tools, and data within the „Business Data Cloud“ will be more closely integrated. Additionally, businesses will find it easier to merge SAP data with external sources, enabling more comprehensive analyses.

The company has developed AI-powered agents for various use cases, such as processing damage claims or handling customer inquiries. SAP intends to charge premium fees for these AI features. The German-speaking SAP User Group (DSAG) welcomes these innovations as a step toward an integrated system, which could reduce the complexity of SAP's increasingly fragmented portfolio due to past acquisitions and strategic updates. For SAP, this is a strategy to bundle its products more effectively.

UBS maintains SAP on its „Buy“ list, with a price target of 283 euros. While the announced AI initiatives may initially have little impact on revenue, they will strengthen SAP’s positioning in the AI sector and enable direct monetization. Goldman Sachs also recommends buying the stock, setting a target of 320 euros. SAP has now outlined how applications and data will be connected through AI, which could help customers solve complex problems and boost productivity.

Competitors like Salesforce and Celonis are also promoting AI-powered agents. But SAP's anonymised data repository could offer a competitive edge for AI training. SAP aims to become like Apple for its customers – offering a fully integrated suite of products. The company's promise is that everything will be seamlessly connected.