HSBC Warns SAP’s Cloud Optimism May Be Overdone

Core Viewpoint - SAP SE is recognized as a significant player in the AI stock market, with HSBC initiating coverage and assigning a Hold rating with a price target of EUR178, indicating limited upside potential due to already reflected robust fundamentals and cloud-driven growth in the share price [1] Group 1: Financial Performance and Growth Projections - HSBC forecasts SAP's revenue to grow at a CAGR of 9.6% from 2025 to 2028, driven by the transition of customers from on-premise software to cloud solutions [2] - The firm estimates that 5% of on-premise customers will migrate to the cloud each year, which is an increase from the previous rate of approximately 4.5% from 2022 to 2025, resulting in a revenue uplift of around 2.5 times [2] Group 2: Market Dynamics and Customer Migration - Despite the positive outlook, HSBC cautions that the market may be overly optimistic regarding the speed of customer migration and its impact on revenues and margins, with 60% of SAP's on-premise customers yet to start their transition to the cloud [3] - Rising competition may cause delays in cloud upgrades, leading to passive growth in the current cloud backlog, prompting the firm to look for clearer signals in SAP's fourth-quarter 2025 results [4] Group 3: Competitive Landscape - SAP is a leader in ERP software, utilizing artificial intelligence to enhance its enterprise resource planning solutions, but faces challenges from increasing competition in the market [4]