Why SAP is the Undervalued AI Powerhouse You Can't Afford to Miss

The tech world is buzzing with AI hype, but one stock is quietly building an AI-driven empire while flying under Wall Street's radar: SAP SE (SAP). Despite JPMorgan's Overweight rating and a €290 price target, SAP's stock remains stubbornly undervalued. Why? The market hasn't yet woken up to SAP's strategic pivot to cloud-first, AI-powered solutions—a shift that's already driving 10.5% revenue growth and positioning the company for sustainable double-digit gains through 2027. This is a buy now opportunity before the crowd catches on.

The Underrated Cloud Engine: Suite-as-a-Service Dominance

SAP isn't just another legacy ERP provider—it's reinventing itself as a cloud subscription powerhouse. Its suite-as-a-service model, which bundles core ERP, CRM, and analytics tools into a unified cloud platform, is crushing expectations. In Q1 2025 alone, cloud revenue surged 27% YoY to €5.0 billion, with ERP Cloud adoption up a staggering 34%.

The cloud backlog—a metric of future revenue—is now €12.8 billion, a 29% YoY jump. That's not a typo. With only 30% of its 30,000+ ERP customers migrated to S/4HANA Cloud, SAP has decades of recurring revenue locked in. And by 2027, legacy systems will no longer be supported, creating a “now or never” migration deadline for clients.

The Business Data Cloud: A Game-Changer Ignored by the Market

While rivals like Oracle and Microsoft focus on generic cloud storage, SAP's Business Data Cloud is a game-changer. Launched in Q1 2025, it's a unified data platform that integrates structured and unstructured data from SAP and third-party systems—including Databricks. This partnership gives enterprises AI-ready data pipelines, enabling predictive analytics and automation that rivals can't match.

Early wins at KION Group and Ferring Pharmaceuticals show how the cloud reduces IT costs by 30% while boosting decision-making. Yet analysts still underappreciate this. JPMorgan notes that consensus forecasts “fail to account for the Business Data Cloud's full potential”—a gap that could add €2 billion+ to SAP's cloud revenue by 2027.

AI Agents and Joule: The Secret Weapon Wall Street Misses

SAP's AI strategy isn't just about tools—it's about workflows. Its Joule AI copilot now spans 20+ SAP and third-party apps, with Microsoft 365 integration rolling out this quarter. But the real gold is its Agentic AI ecosystem:

• Quote Creation Agent (Q2 2025): Automates sales processes, cutting cycle times by 40%.
• Maintenance Planner Agent (Q4 2025): Predicts equipment failures, slashing downtime.
• Dispute Resolution Agent (Q3 2025): Resolves invoice issues in seconds, not weeks.

These “AI agents” aren't just cool toys—they're revenue multipliers. Customers using them report up to 30% productivity gains, yet adoption is still under 20%. That's untapped upside waiting to be unlocked.

The Numbers: Cash Hiccups vs. Long-Term Gold

Bearish investors point to cash conversion challenges in 2026—a valid concern. But here's what they're missing:

1. Recurring revenue is king: 86% of SAP's sales are now subscription-based, giving it predictable cash flows.
2. Profit margins are exploding: Gross margins hit 73.6% in Q1, up from 68% two years ago.
3. Free cash flow is soaring: Set to hit €8.0 billion in 2025, nearly double 2024's figure.

Why JPMorgan—and You—Should Buy Now

JPMorgan's Overweight rating isn't just about today—it's about the mid-term. The firm sees sustainable 10-13% revenue growth through 2027, with AI and cloud backlog growth fueling it. Even after the recent dip to €290, SAP trades at just 13.5x forward EV/Sales, a 50% discount to peers like Snowflake or Twilio.

This is a value trap? No—it's a valuation bargain. Analysts at Wells Fargo just raised their target to €345, while Cowen sees $350+ by 2026. The 34-year dividend streak and moderate debt add a safety net.

Final Verdict: Buy SAP Before the Crowd Catches On

SAP's stock is undervalued because its AI and cloud future isn't priced in yet. The Business Data Cloud, Joule, and Agentic AI are growth engines that will power SAP's €33.6 billion revenue target by 2025—and beyond.

Act now: Buy SAP at €290 today. In 12-18 months, as AI adoption soars and the market wakes up, you'll be thanking me.

Disclosure: This article is for informational purposes only. Consult your financial advisor before making investment decisions.