[SAP] SAP Thesis 2026: S/4HANA Cloud Migration Tests Customer Adoption Velocity

Key Takeaways

• SAP SE (NYSE: SAP) FY2025 revenue ~€36-37.5B (+9-12% YoY) with non-IFRS EPS ~€7.40-8.20 reflecting continued S/4HANA Cloud (RISE + GROW) migration acceleration + cloud backlog ~€19-20B (+25-28% YoY) + selected post-2024 ~$2.2B aggregate restructuring program completion (~8,000 headcount reduction; ~$2.0-2.2B aggregate cash spend FY2024-2025 transition to AI + cloud) under continued CEO Christian Klein (~5-year tenure since April 2020 sole CEO; ex-co-CEO October 2019-April 2020 + ex-COO 2018-2019 + ex-various SAP roles + ~25-year company career).
• S/4HANA Cloud migration momentum: 24,000+ S/4HANA customers as of FY2025 (14,000+ already on cloud editions RISE + GROW); RISE with SAP ($300-500M+ ACV per Fortune 500 enterprise customer) + GROW with SAP ($50-150K ACV mid-market) representing selected primary growth engine; FY2026 catalyst: continued RISE + GROW signing pace + ~25-30% cloud revenue growth + ~€8-9B cloud revenue.
• 2027 ECC end-of-mainstream-maintenance deadline drives migration urgency: ~50,000+ aggregate ECC customers globally facing 2027 end-of-mainstream-maintenance deadline (~2030 extended maintenance available with surcharge); ~30-40% migration-eligible customers represent selected ~$15-25B aggregate cloud TCV migration opportunity FY2026-2030.
• Capital return: ~€2.35-2.45 annual dividend FY2025 (~5% growth post-2024 €2.20 dividend); ~€5B aggregate FY2024-2026 buyback program (announced October 2024; ~$2-3B FY2025 deployment + balance through FY2026); ~€7-8B aggregate FY2025 capital return; investment-grade A2/A credit ratings.

Company Background

SAP SE (NYSE: SAP) is the global enterprise application software leader with FY2025 revenue ~€36-37.5B (+9-12% YoY) and non-IFRS EPS ~€7.40-8.20 reflecting continued S/4HANA Cloud migration acceleration, cloud backlog ~€19-20B, and selected post-2024 ~$2.2B aggregate restructuring transition to AI + cloud focus. SAP serves ~440,000+ global enterprise customers across ~25 industries with ERP + CRM + HCM + supply chain + finance + analytics + AI software. The company employs ~108,000+ globally with operations across ~100 countries.

Founded 1972 as Systemanalyse Programmentwicklung in Weinheim Germany by 5 former IBM employees Dietmar Hopp + Hasso Plattner + Klaus Tschira + Hans-Werner Hector + Claus Wellenreuther (~53-year heritage); selected post-1988 Frankfurt Stock Exchange listing; selected post-1998 NYSE listing as ADR; selected post-2010 Sybase $5.8B + 2013 hybris $1.5B + 2014 Concur $8.3B + 2018 Qualtrics $8B + 2020 Emarsys $400M + 2024 WalkMe $1.5B major acquisitions building cloud + experience management + sales + marketing + finance portfolio; selected post-2014 incorporation as European Company (SE).

Headquartered in Walldorf Germany; ~108,000+ employees globally with ~€36-37.5B revenue. Three primary revenue segments: Cloud 50% revenue (€18-19B — SaaS subscriptions including S/4HANA Cloud + SuccessFactors HCM + Ariba procurement + Concur expense + customer experience + SAP BTP business technology platform), Software Licenses + Support 40% (€14-15B — perpetual licenses + ongoing software support; selected declining as cloud transition proceeds), Services 10% (€3-4B — consulting + premium engagements + customer success + training).

CEO Christian Klein since April 2020 (sole CEO; ex-co-CEO October 2019-April 2020 with Jennifer Morgan; ~5-year tenure); succeeded Bill McDermott (CEO 2010-October 2019 retired who led SAP through major cloud + acquisition expansion 2010-2019); Klein ex-SAP COO 2018-2019 + ex-various SAP roles + ~25-year company career joining 1999 as student trainee. Klein's tenure marked by selected accelerated cloud transition + selected 2024 ~$2.2B aggregate restructuring (~8,000 headcount) + selected AI strategy (Joule generative AI + AI Foundation embedded across portfolio).

S/4HANA Cloud Migration Cycle

SAP S/4HANA represents next-generation ERP succeeding ECC (ERP Central Component) launched 2015 with selected ~24,000+ customers as of FY2025 (~14,000+ on cloud editions RISE + GROW; ~10,000 on-premise S/4HANA). S/4HANA migration progression:

• RISE with SAP (launched January 2021): managed cloud subscription bundling S/4HANA Cloud + SAP HANA database + SAP Business Technology Platform + selected hyperscaler hosting (~AWS / Azure / Google Cloud); ~$300-500M+ ACV per Fortune 500 enterprise customer
• GROW with SAP (launched March 2023): cloud subscription targeted at mid-market customers; ~$50-150K ACV per customer; pre-configured industry templates + accelerated implementation timelines
• Cloud backlog: ~€19-20B FY2025 (+25-28% YoY) reflecting RISE + GROW signing momentum
• Cloud revenue: €18-19B FY2025 (+25-28% YoY) tracking toward ~€21-22B FY2026 (~25% growth target)

FY2026 catalyst: continued RISE + GROW signing pace + ~25-30% cloud revenue growth + ~€8-9B cloud revenue contribution + ~€0.40-0.60 incremental EPS contribution.

2027 ECC End-of-Maintenance Deadline

Selected ~50,000+ aggregate ECC customers globally face 2027 end-of-mainstream-maintenance deadline (~2030 extended maintenance available with surcharge). ECC customers must:

• Option A: Migrate to S/4HANA Cloud (RISE / GROW) — ~30-40% of migration-eligible customers expected
• Option B: Migrate to S/4HANA on-premise — ~20-30% expected
• Option C: Pay extended maintenance fees through 2030 — ~30-40% expected delay
• Option D: Migrate to competing ERP (Oracle / Workday / Microsoft Dynamics) — ~5-10% expected churn

Aggregate ~$15-25B cloud TCV migration opportunity FY2026-2030 from ECC migration cohort. FY2026 catalyst: continued migration acceleration as 2027 deadline approaches + Option A + B mix optimization.

Joule AI + Business AI Strategy

SAP Business AI strategy launched 2023 + accelerated 2024 covering:

• Joule generative AI assistant: launched September 2023; embedded across S/4HANA + SuccessFactors + Ariba + Concur + customer experience portfolio
• AI Foundation: cross-portfolio AI capabilities including ML + GenAI + automation
• Industry-specific AI: 50+ industry-specific AI use cases including supply chain optimization + finance close acceleration + HR talent matching
• Partner ecosystem: NVIDIA + Microsoft Azure + Anthropic + AWS + Google Cloud AI partnerships

FY2026 catalyst: continued Joule + Business AI customer adoption + AI premium pricing tier monetization + ~$200-500M incremental cloud ACV from AI premium tiers.

Risks

• Cloud migration velocity: RISE + GROW signing pace deceleration could compress cloud revenue growth target ~25%
• Macro IT spending: enterprise IT budget compression from macro recession could moderate cloud + on-premise demand
• Competitive pressure: Oracle Fusion Cloud + Microsoft Dynamics 365 + Workday + Salesforce competing for ERP + HCM + CRM migration share
• AI partnership economics: Microsoft + NVIDIA + Anthropic AI partnership royalty + revenue share could compress AI premium tier margins
• EUR / USD currency: selected ~30-40% USD revenue exposure; USD weakness compresses EUR-reported revenue + earnings

Key Core Metrics

Market Evaluation

SAP trades at selected ~30-35x FY2026 P/E premium vs Oracle (~22-26x) + Microsoft (~30-35x) reflecting selected accelerating cloud transition + ~24,000+ S/4HANA customer migration runway + Joule + Business AI strategy + selected 2027 ECC end-of-maintenance migration urgency. Selected re-rating catalysts include: (1) continued cloud backlog €23-25B FY2026 (+20-25% YoY); (2) RISE + GROW signing momentum sustaining ~25-30% cloud revenue growth; (3) Joule + Business AI premium tier monetization; (4) ~€5B aggregate FY2024-2026 buyback program completion; (5) post-2024 ~$2.2B restructuring program execution + adj. operating margin expansion toward ~30% FY2026.

RISE with SAP Customer Adoption Deep Dive

RISE with SAP launched January 2021 represents selected primary S/4HANA Cloud migration vehicle for Fortune 500 enterprise customers (~$300-500M+ ACV per customer typical). RISE bundles S/4HANA Cloud + SAP HANA database + SAP Business Technology Platform + selected hyperscaler hosting (AWS / Azure / Google Cloud) + business process intelligence + Premium Engagement services in unified subscription. Selected RISE customer wins FY2024-2025 include Mercedes-Benz + BMW + Lufthansa + Deutsche Telekom + Bosch + selected ~30-40 Fortune 500 enterprise customers. RISE migration timeline typically 18-36 months covering business transformation + technical migration + data conversion + go-live + post-go-live optimization. RISE growth contribution to ~€18-19B FY2025 cloud revenue exceeds ~50% with continued ramp toward ~€21-23B FY2026 cloud revenue. FY2026 catalyst: ~50-100 incremental Fortune 500 + Global 2000 RISE signings + ~€2-4B incremental cloud TCV + ~€0.40-0.60 incremental EPS contribution from RISE economics.

FY2026 thesis: S/4HANA Cloud migration acceleration + cloud backlog €23-25B + Joule AI + 2027 ECC deadline migration + ~€5B buyback completion.