SAP Stock Jumps 32% in Six Months: What Should Investors Do?

Core Viewpoint - SAP SE has demonstrated strong stock performance, gaining 32% over the past six months, significantly outperforming the Computer Software industry and broader market indices, driven primarily by its cloud business transition [1][4]. Group 1: Cloud Business Performance - SAP's cloud business is a major growth driver, with cloud backlog increasing by 43% year-over-year to €63.3 billion at the end of 2024 [4]. - Cloud revenues surged 25% to €17.1 billion in 2024, with the Cloud ERP Suite being a key contributor, showing a 33% rise in revenues [4][5]. - The company's cloud strategy includes strong performance from AI-integrated solutions, with half of fourth-quarter cloud order entries incorporating AI use cases [6]. Group 2: AI Investments and Innovations - SAP is heavily investing in AI, with over 30,000 developers focused on enhancing its AI capabilities, expecting to generate around €300 million in efficiency gains in 2025 [9][10]. - The introduction of the SAP Green Ledger solution reflects SAP's commitment to sustainability and innovation, linking emissions data with financials [8]. Group 3: Financial Outlook - For 2025, SAP anticipates cloud revenues between €21.6 billion and €21.9 billion, indicating a year-over-year increase of 26-28% [11]. - Total cloud and software revenues are expected to be in the range of €33.1 billion to €33.6 billion, with a projected increase of 11-13% year-over-year [12]. - Non-IFRS operating profit is estimated to be between €10.3 billion and €10.6 billion, reflecting a rise of 26-30% year-over-year [12]. Group 4: Challenges and Market Position - SAP faces challenges with declining software license and support revenues, which fell 3% year-over-year to €3.56 billion in the fourth quarter [13]. - The company is navigating a volatile macroeconomic environment, increasing costs, and stiff competition in the cloud sector [13]. - Despite these challenges, analysts have raised earnings estimates for SAP, indicating a positive outlook for the upcoming quarters [14].