HSBC starts SAP at Hold, says stock valuation already reflects cloud growth

Investing.com -- HSBC started coverage of SAP at Hold, saying the software group’s strong fundamentals and cloud-driven growth are already reflected in the share price, hence leaving limited upside and some downside to consensus expectations. U.S. listed shares are down 3%.

HSBC set a target price of EUR178, which is a downside from current EUR194 levels.

It said SAP’s valuation reflects its strong market position in enterprise resource planning and a solid double-digit earnings growth outlook.

HSBC expects SAP’s revenue to grow at a CAGR of 9.6% over 2025 to 2028, supported by continued migration of customers from on-premise software to the cloud.

The bank estimates about 5% of SAP’s on-premise customer base by revenue will migrate to the cloud each year, up from about 4.5% over 2022 to 2025. It said such migrations typically generate a revenue uplift of around 2.5 times for SAP.

HSBC flagged downside risks to longer-term consensus estimates. Market may be overestimating the pace of cloud migration and the resulting revenue uplift, as well as assuming margin expansion that it views as optimistic.

HSBC highlighted that about 60% of SAP’s on-premise customers have yet to begin migrating to the cloud, despite maintenance fee increases expected in 2027 and the end of support by 2030.

It also pointed to a partnership between ServiceNow and Rimini Street that could allow customers to delay or avoid cloud upgrades, adding competitive pressure. SAP’s current cloud backlog has shown subdued growth, with HSBC looking to fourth-quarter 2025 results for clearer signals.

HSBC said upside risks include faster-than-expected cloud adoption and stronger traction from SAP’s AI-focused initiatives, while downside risks include greater uptake of third-party maintenance options and disruption from AI-driven competitors.

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