SAP Shares Dip Despite Bullish Analyst Forecast

SAP shares (ETR:SAP)slipped 0.82% to €192.40 this morning, edging closer to 52-week lows despite receiving a bullish endorsement from Jefferies that values the enterprise software giant at €290 per share, a potential upside of more than 50% from current levels.

The divergence between analyst optimism and market sentiment underscores the challenging environment facing software stocks as artificial intelligence reshapes industry expectations.

The decline comes as markets grapple with broader concerns about the software sector's valuation and growth trajectory. Jefferies analyst Charles Brennan acknowledged that software sentiment has rarely been lower, with AI casting a shadow of uncertainty across the industry. Yet Brennan maintains that SAP represents a higher-quality business than at any point in its history, driven by recurring revenue growth approaching 15% and a strategic shift toward cloud-based services.

Brennan's analysis highlights a crucial inflection point for SAP. While the stock trades 15% above prior trough valuations, the analyst believes a “trough in sight” narrative is justified given the company's transformation. The shift toward recurring revenue streams provides greater visibility into future performance, which should command more favorable valuation multiples compared to traditional software licensing models. Jefferies maintains a Buy rating on the stock.

The €290 price target from Jefferies aligns with a recent adjustment from JPMorgan, which lowered its target from €310 to €290 while keeping an Overweight rating. JPMorgan cited a bullish fundamental setup following third-quarter results, noting momentum in SAP's backlog heading into the fourth quarter. The firm highlighted that previously delayed deals are returning alongside a robust pipeline as customers accelerate adoption of the RISE platform. JPMorgan projects accelerating revenue growth in 2026 and 2027, with compelling earnings expansion expected through 2028, modeling approximately 20% non-IFRS EPS compound annual growth during that period. The firm also sees potential for a share buyback announcement with fiscal year 2025 results.

Other major institutions have taken a more cautious stance. TD Cowen reduced its price target from $350 to $330 while maintaining a Buy rating, following third-quarter Cloud and Services growth of 12% at constant currency—slightly below the Street's 13% expectation. Management guided fiscal year 2025 Cloud growth to the low end of its previous forecast range, though TD Cowen noted this was largely anticipated. The firm expressed encouragement about management commentary regarding stabilizing macroeconomic conditions and a strong pipeline of large deals.

Deutsche Bank lowered its price target from €300 to €270, maintaining a Buy rating while reducing fiscal year 2025 and 2026 earnings per share estimates by approximately 1% to 1.5%. The bank cited a recent derating across software peers as the primary driver for the adjustment. Deutsche Bank noted that SAP currently trades at 33 times its fiscal year 2026 price-to-earnings ratio, in line with peers when stock-based compensation is treated consistently. Despite the reduced target, the bank called the current valuation highly compelling, emphasizing that SAP continues gaining market share while delivering above-peer earnings and free cash flow growth.

The persistent weakness in SAP shares reflects broader uncertainty about how artificial intelligence will reshape enterprise software. Markets are questioning whether AI-powered tools will disrupt traditional software licensing and subscription models, potentially compressing margins and reducing switching costs. This existential concern has weighed on valuations across the sector, even for companies demonstrating solid operational performance.

SAP's strategic focus on cloud migration and recurring revenue appears designed to insulate the business from these disruptions. The RISE platform, which bundles cloud infrastructure with SAP's enterprise applications, has gained traction among customers seeking to modernize legacy systems. This shift not only improves revenue visibility but also deepens customer relationships, potentially raising switching costs despite AI-driven competition.

The current share price weakness may represent a disconnect between near-term sentiment and long-term fundamentals. With multiple analysts maintaining Buy ratings and price targets significantly above current levels, markets appear to be pricing in considerable uncertainty about the software sector's future. Whether SAP can navigate the AI transition while sustaining double-digit recurring revenue growth will likely determine if the bullish analyst forecasts prove prescient or overly optimistic.

Ultimately, SAP presents a classic battle between strong company fundamentals and bearish sector sentiment. While analysts see a high-quality business with a clear growth trajectory and a compelling valuation, the market remains cautious due to overarching fears about AI disruption.