As enterprises are faced with increasing technical complexity and impending deadlines to migrate their operations to the cloud, DXC offers a seamless end-to-end approach to modernization backed by deep SAP expertise and proprietary tools. Through custom offerings like DXC Complete, DXC's Managed Service Provider (MSP) offering, which can be implemented across platforms, DXC enables seamless migrations, business process optimization, application management, and continuous improvement of SAP workloads. As a R ...

Core Thesis - SAP SE is positioned as a strong investment opportunity due to its transformation into a subscription-driven, cloud-first enterprise, which has reshaped investor valuation of the company [2][5] Company Overview - SAP SE is Europe's largest software company by market capitalization, valued at approximately €288 billion [2] - The company has transitioned from a legacy licensing model to a model focused on recurring licensing revenue, post-implementation support, and consulting/R&D, creating deep customer dependency and predictable cash flows [2][3] Transformation and Strategy - The core of SAP's transformation is the RISE with SAP program, which offers dual-path S/4HANA Cloud migration options, appealing to enterprises seeking both agility and control [3] - Approximately 85% of SAP's revenue is recurring, with cloud revenue projected to reach €21.6–21.9 billion, and the company maintains robust margins at 26.5% [3] Market Position - SAP operates in a €60–75 billion ERP market with high switching costs, facing competition from Microsoft Dynamics 365, Oracle, and Sage, but none match SAP's scale and integration depth [4] - Each S/4HANA migration further entrenches SAP's platform as the operational core of clients' businesses, driving recurring revenue and positioning SAP as essential for AI and data-driven transformations [4] Investment Perspective - The investment narrative for SAP is centered on predictable cash flows, strong pricing power, and customer stickiness, justifying its premium valuation [5] - As enterprises modernize and integrate AI, SAP's cloud and recurring revenue model provide stability and long-term growth potential [5] - SAP is viewed as a strategically essential player in enterprise software, with multiple levers for value creation and limited downside risk due to its entrenched ecosystem [6]

Summary of SAP 2025 Conference Call Company Overview - **Company**: SAP (NYSE: SAP) - **Event**: 2025 Conference held on December 03, 2025 Key Industry Insights - **Cloud Transition**: SAP is focusing on its cloud journey, with a significant portion of its customers transitioning to cloud-based solutions. The company has EUR 11 billion in maintenance left to convert to cloud services [6][24]. - **AI Integration**: AI is seen as a critical component of SAP's strategy, not merely as a tool for cloud adoption but as a core part of its future business model. AI is embedded in business processes to enhance value for customers [9][10][11]. Core Points and Arguments - **Customer Acceptance**: Customers have largely accepted the transition of mission-critical systems, such as ERP, to the cloud, with many opting for additional services like Business Technology Platform (BTP) and AI solutions during the initial transition [5][6]. - **AI as a Business Driver**: AI is positioned as a foundational element of SAP's offerings, with a focus on deeply embedding AI into business processes rather than treating it as an add-on [9][10]. - **Supply Chain Focus**: There is a strong emphasis on supply chain optimization, with AI providing a significant return on investment (30%) in this area. SAP's extensive business network is leveraged to enhance supply chain planning and responsiveness [16][18]. - **Agentic AI Strategy**: SAP is developing agentic AI capabilities that are tailored to specific business functions, allowing for both standard and customizable solutions [13][23]. - **Monetization Strategy**: SAP's monetization approach for AI includes a hybrid model combining consumption-based and per-user pricing, providing flexibility and predictability for customers [27][28][30]. Additional Important Insights - **Market Positioning**: SAP is well-positioned to capitalize on AI adoption due to its unique expertise and the integration of AI with its existing applications and data platforms [15][49]. - **Mid-Market Opportunities**: SAP is actively targeting the mid-market segment, which represents a significant growth opportunity, as it currently captures only 30% of its total addressable market (TAM) in this area [66]. - **Partnerships and Ecosystem**: SAP is enhancing its partner ecosystem to support mid-market growth, enabling partners to handle sales, presales, and implementation autonomously [67]. - **Future Risks**: The primary risk identified is the installed base of customers that may delay cloud adoption. SAP is focused on accelerating migration to the cloud to mitigate this risk [68][69]. Conclusion SAP is strategically positioned to leverage its cloud and AI capabilities to drive future growth, particularly in supply chain optimization and mid-market expansion. The company's focus on embedding AI into its core offerings and enhancing customer experiences through flexible pricing models is expected to strengthen its market position in the coming years.

Core Insights - SAP SE reported third-quarter 2025 non-IFRS earnings of €1.59 ($1.86) per share, a 29% increase year-over-year, although below the Zacks Consensus Estimate of $1.69 [1] - Total revenues on a non-IFRS basis reached €9.08 billion ($10.6 billion), marking a 7% year-over-year increase (11% at constant currency), slightly above the Zacks Consensus Estimate of $10.56 billion [1][2] Revenue Growth and Cloud Strategy - The cloud backlog surged 23% (27% at constant currency) to €18.8 billion, indicating strong market demand [3] - The Cloud and software segment, which constitutes 88.3% of total revenues, generated €8.02 billion, an 8% year-over-year increase (12% at constant currency) [3] - Cloud revenues reached €5.29 billion, up 22% year-over-year (27% at constant currency), driven by a 26% growth in Cloud ERP Suite revenues [4] Client Adoption and Market Expansion - The "RISE with SAP" program saw significant adoption among global organizations, including notable clients like Alphabet and Nestlé [5][6] - Major customer wins included engagements from brands such as BMW, Volkswagen Mexico, and Panasonic, showcasing SAP's expanding clientele [7] Financial Performance and Margins - Non-IFRS gross profit increased 7% year-over-year to €6.7 billion, with cloud gross profit rising 24% to €3.97 billion [10] - Non-IFRS operating profit rose 14% to €2.57 billion, with an operating margin of 28.3% [10] Cash Flow and Share Repurchase - As of September 30, 2025, SAP's cash and cash equivalents stood at €9.9 billion, up from €7.94 billion in June [11] - The company generated operating cash of €1.5 billion, a 7% increase year-over-year, and free cash flow rose 5% to €1.27 billion [11][12] Updated Financial Outlook - SAP revised its full-year 2025 guidance, expecting cloud revenue to be near the low end of €21.6–€21.9 billion, reflecting a 26–28% increase from 2024 [14] - The company anticipates non-IFRS operating profit near the high end of €10.3–€10.6 billion, up 26–30% from 2024 [15]

Financial Data and Key Metrics Changes - In Q3 2025, cloud revenue rose by 27%, marking five consecutive quarters of growth exceeding 25% [5][20] - Total revenue increased by 11% to €9.1 billion, with a share of predictable revenue rising to 87% [21][24] - Current cloud backlog exceeded €18.8 billion, up 27% [20] - Free cash flow increased by 5% to €1.3 billion, while operating profit rose by 19% to €2.6 billion [24] Business Line Data and Key Metrics Changes - The cloud ERP suite delivered 31% growth in Q3, representing 87% of cloud revenues [20] - Software licenses revenue decreased by 42% in Q3, indicating a shift towards cloud solutions [21] Market Data and Key Metrics Changes - Cloud revenue performance was particularly strong in APJ and EMEA regions, with Brazil, France, Germany, India, Italy, and South Korea showing outstanding performance [22] - The U.S. public sector is showing early signs of improvement, with SAP NS2 awarded a major framework contract [10][21] Company Strategy and Development Direction - The company aims to accelerate total revenue growth through 2027, leveraging AI as a key enabler [4][18] - SAP's strategy focuses on providing software and cloud solutions without building infrastructure, partnering with cloud infrastructure providers instead [10][60] - The company is enhancing its AI capabilities, integrating AI into business processes to create high-value use cases [11][62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the Q4 pipeline, noting that many deals are returning, particularly in the U.S. public sector and manufacturing [30][33] - The company anticipates reaching the lower end of its cloud revenue outlook for fiscal year 2025 due to delayed bookings but expects to exceed its operating profit target [25][24] Other Important Information - The acquisition of SmartRecruiters was completed, strengthening SAP's capabilities in talent acquisition [20] - The company is focusing on high-quality data and AI integration to enhance customer value [48][62] Q&A Session Summary Question: Update on demand backdrop in U.S. public sector and manufacturing - Management noted positive early signs in the U.S. public sector and a strong Q4 pipeline, indicating a return of stalled deals [30][33] Question: Insights on backlog and cloud revenue expectations - Management expressed confidence in achieving a good Q4 and maintaining a strong pipeline for cloud revenue growth [35][52] Question: Uptake of SAP ERP transition option - Management indicated positive momentum in the pipeline, with high interest in the transition option helping to accelerate cloud adoption [39][41] Question: Competitive position versus Oracle - Management emphasized that SAP's strategy remains effective, focusing on software and cloud rather than infrastructure [60][62] Question: Free cash flow guidance and expectations - Management highlighted that Q4 cash flow may be impacted by tax payments and working capital fluctuations, but overall cash conversion remains strong [56][57]

Core Thesis - SAP SE is positioned as a leading enterprise software company that has successfully transitioned to a cloud-first model, enhancing its growth potential and market visibility [2][5]. Financial Performance - As of October 10th, SAP's share price was $265.53, with trailing and forward P/E ratios of 41.67 and 33.11 respectively [1]. - Cloud revenue increased by 26% year-over-year, while cloud ERP grew by 33% year-over-year, indicating strong demand for its services [4]. - The cloud backlog has risen nearly 30% to €18 billion, providing visibility for future growth [4]. - Free cash flow is expected to rebound to €8 billion in FY2025, supported by expanding margins and a solid net cash position [4]. Customer Retention and Market Position - Over 85% of new bookings are cloud-based, with a customer retention rate exceeding 98%, which creates significant switching costs and a durable competitive advantage [3][4]. - SAP's systems are deeply integrated into corporate workflows, reinforcing its position in the market [3]. Growth Strategy - The company aims for long-term double-digit growth through the migration of over 300,000 customers to cloud subscriptions, expansion of AI features, and entry into new verticals and SMEs [5]. - Investment cycles are winding down, and operational efficiency is expected to improve as cloud operations scale [5]. Market Perception - Despite being undervalued in U.S. markets due to its operational complexity and European roots, SAP is recognized for its scale, resilience, and potential for compounding growth [5][6]. - The stock has depreciated approximately 9.23% since previous bullish coverage, but the long-term growth thesis remains intact [7].

Core Insights - SAP SE has launched an expanded cloud strategy focusing on digital sovereignty and AI-driven innovation in Europe, addressing regulatory requirements and data protection needs [1][5][10] - The SAP Sovereign Cloud offers flexible deployment options tailored to customer requirements, enabling organizations to innovate securely while maintaining control over their digital assets [2][4][10] Investment Commitment - SAP is committing €20 billion to enhance Europe's digital resilience through secure and regulation-compliant cloud solutions, particularly for the public sector and regulated industries [5][10] Cloud Infrastructure and Offerings - The SAP Cloud Infrastructure (Europe) operates within EU data centers, ensuring compliance with local regulations, while the SAP Sovereign Cloud On-Site provides infrastructure within customer-selected data centers [3][6] - Delos Cloud is specifically designed for the German public sector, facilitating digital transformation while adhering to national sovereignty requirements [4] Financial Performance - SAP's cloud backlog increased by 22% to €18.1 billion, with cloud revenues rising 24% to €5.13 billion, driven by a 30% increase in Cloud ERP Suite revenues to €4.42 billion [8][10] - The company maintains its 2025 outlook, projecting cloud revenues of €21.6–€21.9 billion, reflecting a growth rate of 26–28% at constant currency [8] Growth Strategy - SAP's growth strategy is built on four pillars: product innovation, go-to-market transformation, simplification, and talent investment, aiming for sustained growth through 2027 [9] - The SAP Business Data Cloud is emerging as a core platform, integrating enterprise data to enhance AI-driven operations [11]

Core Insights - SAP SE is set to report its second-quarter 2025 results on July 22, with earnings expected at $1.63 per share, reflecting a 38% increase year-over-year, and revenues projected at $10.4 billion, indicating a 16.47% rise from the previous year [1] Financial Performance - SAP has consistently surpassed earnings estimates in the last four quarters, achieving an average earnings beat of 10%. The company's stock has increased by 56.5% over the past year, significantly outperforming the Computers - Software industry, which grew by 21.4% [2] Cloud Transformation and AI Strategy - The ongoing cloud transformation and AI-driven growth strategy are expected to positively impact SAP's second-quarter performance. The company's cloud revenues rose by 27% year-over-year to €4.99 billion in Q1, with Cloud ERP Suite revenues growing by 34%, making up 85% of total cloud revenues [2][9] - SAP is focusing on Business AI as a key growth driver through 2027, with plans to introduce flexible licensing models for easier transitions to cloud-based versions of its business suite [3] - Significant investments in AI are planned for 2025, with over 30,000 developers dedicated to enhancing AI capabilities and aiming to increase user productivity by 30% by year-end [5][9] Generative AI and Productivity Enhancements - SAP is optimistic about the generative AI trend, expecting it to positively influence future revenues. The company has integrated over 1,300 skills into its AI co-pilot Joule, covering 80% of business and analytical transactions by the end of 2024. AI-assisted contract validation has reduced average contract booking time by 75%, while AI-powered quote-to-cash automation has increased productivity tenfold [4] Competitive Positioning - To maintain a competitive edge in the IT services industry, SAP continues to invest in technological innovations, which may increase research and development costs [7]

Core Insights - smartShift has developed an AI-powered solution to assist SAP customers in transitioning to a Clean Core by identifying and replacing custom ABAP code with standard SAP functionality [1][3] - The need for simplification in ERP environments has made reverting to standard SAP processes a strategic imperative, although identifying alternatives for custom-built functionality remains a complex challenge [2][3] - The use of Large Language Model (LLM) agentic AI allows for the automation of legacy custom code analysis, enabling organizations to evaluate the necessity of custom logic versus modern SAP capabilities [3][4] Company Positioning - smartShift emphasizes that simplification is key to innovation, responding to customer demands for efficient elimination of unnecessary custom code while embracing SAP standards [4] - The company claims to have a long-standing history of addressing SAP custom code challenges, asserting that their platform has delivered thousands of solutions over more than a decade, well before the Clean Core concept gained traction [5] - With AI at the center of its strategy, smartShift aims to lead in enabling SAP customers to simplify and future-proof their ERP landscapes, turning Clean Core ambitions into operational realities [5][6] Market Impact - smartShift's automated AI solutions are designed to reduce technical debt, lower total cost of ownership, and accelerate digital transformation for SAP customers [4] - The company has modernized over 3,300 SAP systems and converted more than 3.5 billion lines of code, showcasing its proven track record in the industry [6]

Investment Rating - The industry investment rating is "Recommended," indicating an expected increase in the industry index by more than 5% over the next 3-6 months compared to the benchmark index [16]. Core Insights - SAP reported a Q1 FY2025 revenue of €9.013 billion, a year-on-year increase of 12%, and a Non-IFRS net profit of €1.681 billion, up 78% year-on-year, exceeding Bloomberg consensus expectations [6]. - The backlog of orders increased by 28% year-on-year, reaching €18.202 billion, indicating strong demand for SAP's cloud services [6]. - SAP maintains a positive outlook for FY2025, projecting cloud and software service revenues between €33.1 billion and €33.6 billion, with expected growth rates of 11% to 13% year-on-year [6]. - The cloud business generated €4.993 billion in revenue, a 27% increase year-on-year, driven by continuous demand for cloud services [6]. - The introduction of AI tools has improved efficiency, with developers' productivity increasing by 30%, which is expected to accelerate innovation [6]. Summary by Sections Industry Basic Data - The computer industry consists of 336 listed companies with a total market capitalization of ¥42,000.86 billion and a circulating market capitalization of ¥35,778.06 billion [3]. Relative Index Performance - The absolute performance over the last 1 month, 6 months, and 12 months is -11.5%, 3.3%, and 36.0% respectively, while the relative performance is -8.1%, 7.7%, and 28.8% [4]. Company Performance - SAP's cloud business revenue for Q1 FY2025 was €4.993 billion, reflecting a 27% year-on-year growth, with cloud ERP suite revenue increasing by 34% to €4.251 billion [6]. - The company expects free cash flow of approximately €8 billion for FY2025, with an effective tax rate of around 32% [6].