SAP: The Most Undervalued AI Stock

AI at the Core of SAP’s Business Strategy

SAP has been rapidly transforming its core software products with AI, particularly through SAP Business AI. The company integrates AI into SAP S/4HANA Cloud, SAP SuccessFactors, SAP Ariba, and SAP Customer Experience solutions, enabling businesses to leverage AI-driven automation and decision-making. These innovations help SAP’s enterprise customers streamline operations, reduce costs, and improve efficiency. With AI embedded across its product suite, SAP is poised to capitalize on the growing demand for enterprise AI solutions.

SAP has consistently delivered strong financial results, demonstrating its ability to grow despite economic headwinds. In 2024, the company reported total revenue of €32.5 billion, reflecting a 10% year-over-year (YoY) increase. The cloud business, which is central to SAP’s AI expansion, grew by 25% YoY, reaching €16.5 billion. Additionally, the operating profit margin expanded to 32%, showing improved operational efficiency as SAP scales its AI-driven cloud offerings.

SAP’s transition to a cloud-first model is accelerating, with its cloud backlog surpassing €15 billion—a key indicator of future revenue growth. The company’s AI-powered cloud solutions are seeing widespread adoption across industries, allowing businesses to automate workflows, optimize supply chains, and enhance customer engagement. With AI becoming a mission-critical tool for enterprises, SAP’s leadership in enterprise software positions it as a long-term winner in the AI revolution.

SAP's enterprise software is used by some of the world’s largest and most influential companies. 77% of global transaction revenue passes through SAP systems, underscoring its dominance in enterprise AI and business applications. SAP serves major corporations such as Apple, BMW, Siemens, Nestlé, Coca-Cola, and Unilever, all of which rely on SAP’s AI-driven ERP, finance, and supply chain management tools. The company’s widespread adoption among Fortune 500 firms provides it with a strong and stable customer base.

Strategic AI Partnerships with Tech Giants

SAP has established deep collaborations with some of the largest technology companies to strengthen its AI capabilities. The SAP-Microsoft partnership integrates SAP’s AI-driven cloud applications with Microsoft Azure OpenAI Service, providing customers with advanced AI-powered insights and automation tools. Similarly, SAP collaborates with Google Cloud and AWS, allowing businesses to run SAP applications on multiple AI-optimized cloud platforms. These partnerships significantly enhance SAP’s AI ecosystem and global market reach.

Competitive Advantage in the AI Market

Unlike consumer-focused AI companies, SAP dominates AI-driven enterprise applications, an area with immense growth potential. The demand for enterprise AI software is expected to reach $200 billion by 2030, and SAP is positioned as one of the largest beneficiaries. Its ability to integrate generative AI, machine learning, and real-time analytics into mission-critical business applications gives it a unique competitive edge over other AI-focused companies.

One of SAP’s biggest strengths is its focus on AI-powered business process automation. SAP’s machine learning models help companies predict demand fluctuations, optimize supply chains, automate financial processes, and enhance human resource management. AI capabilities within SAP SuccessFactors enable businesses to leverage AI-driven recruitment, employee engagement, and workforce planning. These innovations position SAP as the leading provider of AI-based enterprise automation.

SAP’s AI-driven supply chain solutions, embedded in SAP Integrated Business Planning (IBP) and SAP Ariba, allow companies to enhance logistics efficiency. AI algorithms within these platforms help enterprises predict demand spikes, manage supplier risks, and optimize inventory levels. This is particularly crucial in industries such as manufacturing, retail, and pharmaceuticals, where AI-powered automation can significantly reduce costs and improve operational efficiency.

SAP is aggressively investing in AI research and development (R&D) to stay ahead of the curve. The company allocated over €6 billion to R&D in 2024, with a significant portion dedicated to AI advancements. Through initiatives like SAP AI Labs, the company is developing next-generation AI-powered analytics, automation, and decision-making tools. These investments further solidify SAP’s role as a leading innovator in the AI space.

Undervaluation Compared to AI Peers

Despite its AI advancements, SAP remains significantly undervalued relative to other AI leaders. The company trades at a forward P/E ratio of approximately 22, while AI-focused cloud and software firms like Microsoft, ServiceNow, and Salesforce trade at multiples of 30-40. Given its strong revenue growth, expanding profit margins, and increasing AI adoption, SAP’s stock price has substantial upside potential.

Given SAP’s financial strength and AI-driven business transformation, the stock has significant upside potential. Analysts estimate that SAP’s fair valuation should be closer to €330 per share, implying at least a 30-40% upside from current levels (Best Case). As the market recognizes SAP’s AI leadership in enterprise solutions, its valuation should realign with its peers in the AI sector.