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SAP SE (SAP.DE) at €168.68, down 13% today on an earnings release that apparently was not well received. The giant of the European software space.
Also listed in the US as SAP, $202.88 in pre-market as I type, down 14.1%.

Interesting firm, I wish I knew it more deeply.

As part of a long term ongoing switch from license sales to recurring revenue, net earnings have plateaued for a while. The same sort of drawn out short-term-pain-long-term-gain effect that Adobe went through.

I hear their cloud stuff is doing very well indeed.

You can see that sales growth rate has held up well, but net earnings haven't--falling net margins, which may ultimately be transient. "Analyst opinion" is that this is coming to and end, and even some of the more conservative analysts are expecting double digit earnings increases for at least the next 5 years. Several forecasts are around 15-16%/year, cloud division maybe 20%/year for a while. Value Line mentions EPS growth of 26.5%/year for the 3-5 year horizon on sales growth of 9%/year, so a big rebound in net margins.

Bad news? Alas sales growth is very much better at top line than at the per-share level - share counts have risen a lot over time, e.g. up about 5.5%/year in the last decade. And I think (?) that is due overwhelmingly to a whole lot of not-very-European share- and option-based comp, not acquisitions. Ick.

Still, one might see €10 in on-trend EPS after not that long. 15 year median multiple around 25x range, higher during earnings dips, because their revenue is considered so reliable.

Indicated dividend is about 1.20% for those who care. I think I heard a rumour that they were going to cut their payout ratio and put more capital into growth initiatives. But as mentioned, I don't really know them deeply.

If researching, be sure to check whether you're looking at IFRS bookkeeping or not, there are figures out there under different standards which are not always commensurable, like the euro and USD figures.

Jim
(no position, yet anyway)

<<I hear their cloud stuff is doing very well indeed.>>

Well, sort of.

This is NOT my area of expertise (although I, like many folks, have had direct experience with SAP apps over the years). What I read is that some of SAP's biggest customers--e.g., entire governments and major non-US enterprises--are squeamish about moving their critical SAP systems into the cloud when most of that "cloud" will in fact reside on servers operated by Google, Amazon, Microsoft, et al. and not by SAP. SAP insists that they have systems in place to prevent leakage and that it's simply too late for SAP or anyone else to create a new rival to those behemoths from scratch.

So there's been some foot-dragging.

On top of this, shares of software companies have experienced a good deal of multiple compression recently, out of concern that AI will render a lot of their moats, um, evanescent.

All that said, I'd been looking at SAP for nearly a year now, as I've begun to educate myself about ways to diversify investments away from US-based companies, and dollars. The share-price drop has increased my interest.

shares of software companies have experienced a good deal of multiple compression recently, out of concern that AI will render a lot of their moats, um, evanescent.

I'm wondering whether speculative, non-value-oriented, short-term market volatility might be diminished by AI rendering more accurate estimates of fair value.

Tom

I'm wondering whether speculative, non-value-oriented, short-term market volatility might be diminished by AI rendering more accurate estimates of fair value.

I very much doubt it. An LLM might be very good at encapsulating the consensus of current opinions, or reproducing the logic and arithmetic steps of one or more people, but I'm at a loss to imagine how either of those would be an improvement beyond what already happens. The opinions would be no more or less biased, and the valuation methodologies no more or less meaningful.

We've had enormous amounts of automated trading for a few decades now, with algorithms specifically crafted for the task with actual insights on what the result is intended to do, rather than consensus machines, and it has hardly led to flat or rational valuation levels.

Besides, if you had a truly better estimate of the fair value of some asset, what would you do with that information? Most "money" would be uninterested in the result, being interested only in imminent price movements.

Jim

being foreign equity, i also like SAP. it is an obvious top selection for anyone wanting to diversify their software suppliers away from america.
to no detriment on selection from american companies....from m* :

"...98 of the 100 largest companies in the world are SAP customers and 85 of the 100 largest companies are SAP
S/4HANA (core ERP offering) customers..."

famous venture\vulture fund manager posts
"Why the World Still Runs on SAP...And How AI Will Save Everyone Using It"

venture funds have many billions in stake in startups competing w/SAP (at app\analysis layers) for a finite pool of money. should we be skeptical? yes+++++ !

these startups need access to much ERP data and process within private walls. ideally free access in perpetuity, and need remain very nice while picking their pockets.

also curious, america as the bastion of leading edge tech, which S&P500 corporates run on SAP, and to what extent. was surprised at how small the $ numbers are relative to the stakes.
of course none of this includes employee training spend (in corporate wages&time).
table below from AI.

## 20 Largest S&P500 Companies (that use SAP) — Estimated Spend

| # | Company | Estimated total cost (licenses,implementation,services) | Estimated annual spend
| 1 | Walmart | $1B–$3B | $50M–$200M |
| 2 | Exxon Mobil | $800M–$2B | $40M–$150M |
| 3 | Chevron | $700M–$1.5B | $30M–$120M |
| 4 | Ford Motor Company | $500M–$1.2B | $25M–$100M |
| 5 | General Motors | $400M–$1B | $20M–$90M |
| 6 | Boeing | $400M–$900M | $20M–$80M |
| 7 | AT&T | $300M–$800M | $15M–$70M |
| 8 | Verizon Communications | $300M–$800M | $15M–$70M |
| 9 | JPMorgan Chase | $250M–$700M | $10M–$60M |
| 10 | Bank of America | $200M–$600M | $10M–$50M |
| 11 | Coca‑Cola Company | $200M–$600M | $10M–$50M |
| 12 | PepsiCo | $150M–$500M | $8M–$45M |
| 13 | Procter & Gamble | $150M–$450M | $8M–$40M |
| 14 | Nestlé | $150M–$450M | $8M–$40M | (foreign)
| 15 | UnitedHealth Group | $120M–$400M | $6M–$35M |
| 16 | Johnson & Johnson | $100M–$350M | $5M–$30M |
| 17 | Merck & Co. | $100M–$300M | $5M–$25M |
| 18 | Pfizer | $80M–$250M | $4M–$20M |
| 19 | Honeywell International | $80M–$250M | $4M–$20M |
| 20 | 3M | $70M–$220M | $3M–$18M |
Notes: estimates are based on public reporting, integrator disclosures, and industry analysis; precise contract values are often confidential.

A former colleague of mine manages SAP projects for a French IT service company serving SAP customers in Germany. I had a conversation with him and would like to briefly outline the key points from my perspective.

An SAP system consists of an operating system (Linux), SAP Basis, a database, and applications. Originally, all of these were run on servers at the customer's site. An IT service provider handled the operation. Various products were used as databases, most commonly Oracle.

SAP now has its own database called HANA, which is technically superior. Almost all customers now use it, cloud-based.

SAP's goal is to migrate the SAP Basis to the cloud for as many customers as possible. As leverage, customers are given the choice of continuing the service outside the cloud at a 5% higher price for licenses, or having the migration carried out at SAP's expense.

In Germany, this cloud migration has already been completed for approximately half of the customers in the last five years.

This leads to increased service revenues, as SAP now handles the operation of the SAP Basis itself. Furthermore, it makes sense to also have SAP manage the applications and necessary customizations in-house, instead of outsourcing them to IT service providers as before – resulting in further revenue growth and higher margins.

Take care,
Josef

SAP SE (SAP.DE) at €168.68, down 13% today on an earnings release that apparently was not well received...

Progress from the kickoff post at end Jan: Price around €151-152 today, still hitting fresh 52 weeks lows.
culter adhuc cadit*

But what should a person pay?

Trailing P/E ratio is not the best way to value this firm, but FWIW it's still high by conventional standards at 25, but in the last 10 years was lower only for a few months in early 2022. If you like good omens, the price was up by a factor of 2.5 in the subsequent couple of years that time...so it's a "buy" on the simplistic "history will repeat" theory of investing.

More seriously, the general idea is that such a reliable stream of future earnings is worth a premium, so it's mainly a matter of discerning how MUCH of a premium applies.

A simplistic analysis: I'm cheap, so my starting rule of thumb for *anything* is I don't like it above 21 times on-trend earnings (what the current period would be if it were neither unusually good nor unusually bad). Consequently, offhand I'd say it was a good deal at €125 today (not far from 21 times trailing headline earnings), but my impression is that it's already into a range that should give entirely satisfactory returns in the next few years (not far from 21 times estimated current year earnings).

A more sophisticated but conservative rule that I use that works for most any kind of firm from dead end cash cow to currently-profitless speculative growth rocket: if you pay no more than 12 times the "pretty darned sure" average real EPS in the stretch 5-10 years in the future, you'll do OK. If you pay less than 10 times that figure, you'll do very well. That rule implicitly assumes fairly modest terminal multiples. Flipped around, starting from a trailing EPS figure around €6.10, EPS growth would have to be 10%/year for today's price of €152 to get you the "under 12" threshold, or 12.6%/year to get you the "under 10" threshold. Those are similar to some analyst forecasts, lower than others. But they aren't low figures, so the "pretty darned sure" test probably isn't met. Yet.

Jim

* as the saying goes, a gentleman need not know Latin, but should at least have forgotten it

ref: ADR = 1 share sap.de
(so $ADR ~ sap.de * 115% , per crude fx rate calc)

josef,
the ventures strategy is to compete at the app\analysis layer. since this is where the user experience will happen, it will be salesmanship focused on perceived\experienced value vs foundational layers.
the threat will be customers refuse to pay anything for sap applications, and refuse sap altogether w/out 3rd-party AI products.
this is war. i have seen similar dynamics for decades in healthcare.

jim,
my learn-ed latin was via healthcare, but the fun came from decades of rumpole and others on bbc.

SAP SE (SAP.DE) at €168.68, down 13% today on an earnings release that apparently was not well received...
...
Progress from the kickoff post at end Jan: Price around €151-152 today, still hitting fresh 52 weeks lows...

€146 and change, down another 4.6% just today. Whee!
I imagine there is a value level down there somewhere. As mentioned, at €125ish I think I'd feel pretty confident of a good outcome even if they are never again bid to valuation levels implying superstardom.

I have a small position, though obviously it's not doing me much good yet.

Jim

jim,
just curious why you dont set a limit order near your conviction price?
(my own pref is to avoid complexity of options)

thx

you dont set a limit order near your conviction price?

No...my experience has been that when things plummet, it's often to a much lower level than whatever limit you choose. I prefer to watch and wait. On rare occasion I have set a price trigger alarm, something my broker offers. The first time it triggered, I jumped out of my skin, never having heard my computer make that wail!

Another reason is that when a price plunges, sometimes it is for a rational business development reason which just became known. With an alarm you can read it and decide the value, but when it's a limit order you can't.

If I'm going to commit to buying something in future at a given price without knowing the news developments between now and then, I at least want to get paid for that, which options allow me. And the pay can be pretty good, which means that it often becomes pretty irrelevant whether my target price is ever hit or not.

On average over the years, I find that cash backed put writing has offered a rate of return for each stock around halfway between the return on the stock in the same period, and 10-12%/year, with zero leverage. Averaged over around 100,000 contracts.

Jim

Lots of software companies down today on news that Amazon Web Services is developing an AI agent to automate some functions for sales, business development and other groups.

Microsoft is now trading at 20 times FWD PE, a bit less than SAP’s 21. And the champion of AI stocks, NVDA is at 21 FWD PE with 3-5 year FWD EPS growth of over 30%. In comparison much slower growing “AI proof” companies like JNJ and MCD are trading in the same 21-23 FWD PE range.

And SAP has received poor reviews from clients and partners over the quality and price of its AI tools.

https://www.bloomberg.com/news/articles/2026-03-24...

https://seekingalpha.com/news/4556647-sap-investor...

thx jim.
kind of the same here, minus all the options complexity.
i am always a bit queasy about my subjective impact of a plunge, but if fundamentals still seem a go, i set a limit order near the daily low.

the ventures strategy is to compete at the app\analysis layer. since this is where the user experience will happen, it will be salesmanship focused on perceived\experienced value vs foundational layers.

I would have expected user experience to be less important in a corporate environment. Why do you think it's a primary purchasing decision?

the threat will be customers refuse to pay anything for sap applications, and refuse sap altogether w/out 3rd-party AI products.

Most large companies already use SAP. Refusing SAP altogether is simply not an option for them, as switching to another system with all the necessary customizations would be a huge undertaking. So, don't pay for it—forget it.

As for applications from other vendors, I don't know how practical their use would be; I lack the experience there.

Regarding AI, I can't imagine a large company entrusting its order processing or invoicing to AI. For analysis purposes, yes.

briefly :
outside of IT, the c-suite and top layers of every functional dept. interact at the UI and analysis layer. let's just say even more superficial criteria can come into play with sales decisions.
i see refusal for 3rd-party more a barrier for new enterprise sales, rather than handcuffed incumbents.

my personal experience with AI (operating on my own private data) within consumer products is abysmal when the model has been developed in-house. a prime example is intuit for taxes and accounting. their AI is not just bad, but a complete waste of time for those that try it out.

the public test most are aware of is microsoft as it attempts to remove openAI within its proprietary products...not sure if they will be good, but at least they have a benchmark.

I obviously underestimated the importance of AI for SAP. This is an excerpt from the CEO's letter:

Business AI and SAP Business Data Cloud will be key drivers of our growth. Our refreshed strategy for 2026 focuses on five strategic
pillars that will create a major opportunity and fundamentally change how enterprises run.
– Reinventing the user experience with our AI copilot, Joule.
– Embedding intelligent agents directly into business processes to automate tasks.
– Developing high-impact AI applications for specific industries to create further value.
– Powering our entire strategy with SAP Business Data Cloud, which provides the rich, contextual data that is essential for true
Business AI.
– Using AI to accelerate our customers’ move to the cloud.

Scary, if they were (are?) not good at creating their own AI. Still, their installed base is unlikely to switch without a very good reason

I realize this is a non-US stocks discussion board, but I think this is relevant to the discussion of the valuation of SAP. Morningstar has published a list of wide moat "AI proof" companies. Most of them are software or IT related. There are a few non-US stocks like Dassault and RELX in their list.

https://www.morningstar.com/stocks/27-companies-wi...

€146 and change, down another 4.6% just today. Whee!
...
I have a small position, though obviously it's not doing me much good yet.

Another update...
Down to €139.17. Hitting fresh 52 week lows, down 49% from the 52 week high, and about at levels last seen at the start of 2024. I added a bit today. Still not doing me any good yet, of course : )

For whatever it's worth (not much), Value Line's 3-5 year target is, when converted to euros, €180 - 240, implying central estimate low double digit annualized price return plus dividends around 1.75%/year. That target does assume a healthy ending P/E of 22, which is actually about the low end of annual average multiples in the last decade.

Jim

Perhaps Salesforce CRM is a better option.

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