TD Cowen Upgrades SAP Stock to Buy: Strong Growth Drives Valuation Increase

In a recent move, TD Cowen has upgraded SAP's stock rating to "Buy" from "Market Perform," citing the company's robust growth and positive outlook. This upgrade reflects the strong performance of SAP's cloud business and the potential for continued growth in the coming years. As an investor, it's essential to understand the key drivers behind this upgrade and how they impact SAP's valuation.



One of the primary reasons for the upgrade is SAP's impressive cloud revenue growth. In the second quarter of 2024, SAP's cloud revenue grew by 25% year-over-year (YoY), driven by a 33% increase in Cloud ERP Suite revenue. This strong growth indicates that SAP's cloud business is expanding and its products are in high demand. As revenue grows, so does the company's market share and potential for future earnings.

Another key factor contributing to the upgrade is SAP's improved operating profit margins. Despite restructuring expenses, SAP's non-IFRS operating profit grew by 33% YoY and up 35% at constant currencies. This growth demonstrates that the company's profitability is improving, which is a crucial driver of valuation.

SAP's current cloud backlog also plays a significant role in the upgrade. The company's cloud backlog increased by 28% YoY to €14.8 billion, indicating a strong pipeline of future revenue. A larger backlog suggests that SAP has a solid foundation for its cloud revenue ambition for 2025 and beyond.

TD Cowen's upgrade also reflects SAP's confidence in achieving accelerating top-line growth through 2027. The company's strong pipeline and deal momentum, particularly in the third quarter of 2024, contribute to this optimism. As SAP continues to execute on its transformation and growth strategies, its valuation and stock price are likely to rise.

In conclusion, SAP's strong growth in cloud revenue, improved operating profit margins, and increased cloud backlog have driven TD Cowen to upgrade the company's stock rating to "Buy." As an investor, it's crucial to monitor SAP's progress and consider the potential for future appreciation based on these positive developments. By staying informed about SAP's growth drivers and valuation metrics, you can make more informed investment decisions and capitalize on the company's strong performance.