- Spot at deepest discount to analyst price targets on overblown AI disruption fears
- Proactive integration of AI and large cloud backlog to drive further growth
- Elevated volatility supports selling downside to play a broader risk-on rebound
SAP has lagged the broader market and tech sector in 2025, trading 20% below its yearly highs and at the deepest discount to analyst price targets over the last few years despite strong Q2 results and exceeding margin expectations. This underperformance stems from the markets concerns about AI's disruptive potential for software firms, a weaker U.S. dollar (impacting 40% of revenues), and a shift toward European cyclical stocks. Additionally, management's guidance of decelerating cloud consumption-based growth from its 2024 rate of ~29% has weighed on sentiment.
However, SAP is well-positioned to withstand AI-related risks. It has a mission-critical enterprise role, requiring extensive collaboration for any replacement, combined with deeply tailored, customer-driven solutions and vast data handling. Moreover, SAP’s proactive integration of AI across its cloud-first platform positions it to capitalise on AI advancements rather than be disrupted by them. The current cloud backlog, standing at 28% at year-end, is also supportive of further revenue growth acceleration in 2026
Currently, SAP trades near its two-year range lows with a P/E of 32.4x, a 24% discount to its peak valuation, presenting an attractive entry point. With the Fed's new rate-cutting cycle likely to drive risk-on sentiment, the stock’s recent rebound from range lows signals potential for sustained upside momentum. Given 3M ATM IV appears rich at 1YPc67 we propose Long 1.5x Dec25 250 calls financed by 1x Dec25 210/190 put spread at a net cost of 1% of underlying. (Spot ref: 224.4, Fut. ref 225.6).