SAP SE (SAP): A Bull Case Theory

We came across a bullish thesis on SAP SE on Northwest Frontier Capital’s Research’s Substack by Northwest Frontier Capital. In this article, we will summarize the bulls’ thesis on SAP. SAP SE’s share was trading at $272.53 as of August 20th. SAP’s trailing and forward P/E were 42.10 and 39.22 respectively according to Yahoo Finance.

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SAP’s Q2 results reaffirmed the company’s strong fundamentals despite short-term market concerns around a slight miss in cloud revenue and modest backlog deceleration. Cloud backlog rose 28% year-over-year to €18 billion, while cloud revenue reached €5.13 billion, up 28%, with the Cloud ERP suite remaining the growth engine, up 34% to €4.42 billion. Total revenue grew 12%, operating profit rose 35% to €2.57 billion, EPS beat expectations at €1.50, and free cash flow surged 83% to €2.36 billion.

Concerns around U.S. federal sales delays and trade policy weighed on sentiment, but these represent a small portion of revenue and recent EU trade clarity mitigates the risk. More importantly, SAP’s transition from its €10.5 billion maintenance base to higher-value cloud contracts, along with RISE and GROW customer wins and rapid geographic expansion, particularly in Asia with a landmark Alibaba partnership, unlock vast long-term potential. Early traction in the new Business Data Cloud highlights another multi-billion euro opportunity, while AI integration promises both margin benefits and new revenue streams, echoing the success of SAP’s cloud migration strategy.

Operating leverage was a key highlight, with expense growth limited to 5% and cloud gross margin improving 170bps, underscoring structural efficiency gains. While shares trade at 38.5x FY25 earnings, a premium to peers, SAP’s deep structural advantages, durable growth drivers, and compounding free cash flow potential support a double-digit IRR outlook. Despite near-term volatility risks, SAP remains a core compounder with a powerful long-term growth trajectory that the market continues to underestimate.

Previously we covered a bullish thesis on SAP SE by FluentInQuality in April 2025, which highlighted its sticky ERP suite, cloud pivot, and AI-driven efficiencies. The stock has depreciated ~6.8% since our coverage due to concerns around cloud backlog deceleration. The thesis still stands as SAP’s entrenched enterprise role drives compounding. Northwest Frontier Capital shares a similar view but emphasizes Q2 results, Business Data Cloud, and operating leverage.

SAP SE is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held SAP at the end of the first quarter which was 27 in the previous quarter. While we acknowledge the risk and potential of SAP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SAP and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.