SAP Earnings: Fourth-Quarter Results Buoyed by Continued Cloud Demand

We are raising our fair value estimate for SAP to EUR 132 from EUR 119 after the firm reported a strong fourth quarter, beating our EPS expectations. Longer term, we continue to believe SAP’s otherwise strong switching costs will be restored once the bulk of enterprise workloads have moved to the cloud. However, we think the firm will experience an uptick in churn over the next 10 years as cloud migrations give way to rethinking IT strategies and software vendors. Management provided solid 2024 guidance as well as reiterating its 2025 targets, which we expect to be supported through its transformation roadmap involving greater strategic investment toward cloud and Business AI. While shares were up around 7% after these results, we still view the shares as overvalued.