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]

SAP Conference Call Summary - November 14, 2025 Company Overview - **Company**: SAP (NYSE: SAP) - **Industry**: Software and Cloud Services Key Points and Arguments Financial Performance and Growth - SAP experienced a strong start in Q1 2025, but faced tariff disruptions impacting Q2 and Q3, leading to a cautious outlook in September [3][4] - CCB (Cloud and Cloud-Based) growth is projected to be slightly down by year-end, influenced by the WalkMe acquisition and deal slippage [4][6] - Q3 showed strong CCB growth, with underlying performance remaining robust despite M&A impacts [7][9] - Large transactions in the pipeline could significantly affect Q4 CCB growth if closed within the year [8][12] - The institutional business in the U.S. has shown signs of recovery, with a significant deal signed with IDIQ for up to $1 billion [9][10] Cloud Revenue Insights - Cloud revenue growth is expected to be at the low end of guidance, with a 0.7% variance from initial projections [6][22] - The company emphasizes the importance of CCB growth as a more meaningful metric than cloud revenue alone [25][22] - Approximately 40% of SAP's ERP maintenance base is on the RISE journey, indicating significant potential for future cloud revenue growth [27][28] Market Position and Competitive Landscape - SAP is growing at approximately 29% in the PaaS and SaaS segments, outperforming competitors like Workday and Oracle [48] - The company is focused on maintaining a competitive edge through AI integration and enhancing customer experiences [62][67] AI and Transformation Initiatives - SAP views AI as an opportunity to enhance its offerings, with a focus on data management and integration [62][64] - The company is investing in tools to facilitate customer transitions to S/4HANA, aiming to reduce risks and costs associated with migration [36][38] - New AI-driven functionalities are being developed to improve operational efficiency and customer satisfaction [72][74] Future Outlook - SAP aims to achieve Rule of 40 status, balancing growth and profitability, with expectations for revenue growth to accelerate in 2026 and 2027 [52][51] - The company is optimistic about its long-term growth trajectory, driven by cloud conversion and new business opportunities [50][51] Challenges and Risks - The company acknowledges potential challenges in sustaining high growth rates as market conditions evolve [48][50] - There is a recognition of the need for continuous adaptation and innovation to maintain competitive advantages in a rapidly changing market [68][70] Additional Important Insights - SAP's transformation initiatives are seen as essential for long-term success, with a focus on leveraging AI and data analytics to enhance product offerings [15][36] - The company is actively recruiting talent to support its growth strategy, particularly in AI and cloud services [69][70] - SAP's historical expertise in various verticals provides a competitive advantage in developing tailored solutions for customers [67][68]

Core Viewpoint - SAP is expected to report improved Q2 performance, driven by S/4HANA transformation, AI investments, and a long-term trend towards public cloud readiness, according to Morgan Stanley's channel survey [1][2]. Group 1: Q2 Performance Expectations - Morgan Stanley's survey of 30 SAP channel partners indicates a positive outlook for SAP's Q2 performance, with overall SAP business growth among surveyed partners at 1.1%, up from 0.7% in Q1 [2]. - European channel partners showed stronger performance with a growth rate of 2.0% in Q2, compared to 1.1% in Q1, while U.S. partners maintained a growth rate of 0.3% [2]. - Cloud subscription business growth rebounded to 2.6% in Q2, significantly higher than the 0.7% growth in Q1, indicating strong performance from both U.S. and European partners [2]. Group 2: Future Growth Projections - For Q3 2025, channel partners anticipate further acceleration in overall SAP business growth to 1.6%, with U.S. partners expecting a rebound to 1.8% and European partners slightly slowing to 1.5% [3]. - Despite the positive Q2 results, channel partners have lowered their full-year growth expectations for SAP from 5.4% to 3.2%, with specific reductions in license business growth from 3.7% to 1.1% and cloud subscription growth from 8.2% to 3.6% [3]. Group 3: Market Sentiment and Opportunities - Over 60% of channel partners' customers have yet to begin the S/4HANA transition, indicating significant conversion opportunities for SAP [4]. - Most channel partners remain optimistic about SAP's benefits from AI investments, highlighting the importance of continued investment in this area [4]. - Despite some mixed results in the Q2 survey, Morgan Stanley noted no substantial changes in customer behavior or transaction activity compared to Q1, suggesting stability in SAP's core business [3][4].

Core Viewpoint - Morgan Stanley has upgraded SAP's stock rating to "Overweight," identifying it as a preferred stock due to anticipated improvement in Q2 performance and continued growth acceleration driven by S/4HANA transformation, AI investments, and long-term trends towards public cloud readiness [1] Summary by Categories Company Performance - A survey of several SAP channel partners indicates that SAP's Q2 performance is expected to improve [1] - Growth is projected to continue accelerating, supported by ongoing initiatives [1] Strategic Initiatives - The transformation towards S/4HANA is highlighted as a key driver for growth [1] - Investments in artificial intelligence (AI) are also noted as a significant factor contributing to the company's positive outlook [1] Market Position - Morgan Stanley has set a target price of €285.00 for SAP's stock, reinforcing its position as a top pick in the market [1]