AI transformation dividends strengthen profit growth logic! SAP (SAP.US) upgraded to "Overweight" by JPMorgan, target price raised to 275 euros

According to Golden Ten Data, JPMorgan has upgraded SAP (SAP.US) from “Neutral” to “Overweight” in its latest research report, as it believes the transition of artificial intelligence (AI) from the pilot stage to full-scale deployment will benefit Systems of Record providers like SAP. At the same time, the bank notes that SAP’s own AI products are also continually improving. JPMorgan raised its target price for SAP’s Europe-listed shares from €175 in December 2027 to €275 in December 2028, implying an upside potential of about 30%.

In the report, JPMorgan notes that during the early stages of the AI development cycle, as companies rushed to experiment, market attention shifted towards AI prototype development. However, as various projects move from the pilot stage to broad deployment with the help of agents, customers are gradually realizing that realizing large-scale applications and achieving a return on investment (ROI) depends on much more than just the model itself. There are three key factors: context, meaning clean, unified data and business semantics to ensure that agents understand the business; control, meaning security, permissions management, and governance mechanisms to ensure that agent actions are trustworthy; and cost, meaning the ability to achieve predictable and manageable expenditure at scale.

JPMorgan’s assessment of system integrator (SI) industry trends over the past year shows that companies are increasingly recognizing that these factors are critical to scaling AI operations, a trend that benefits incumbent Systems of Record providers like SAP.

JPMorgan also believes that SAP’s own AI products are improving. The bank’s research among customers and partners also shows progress in its products, which have already begun to demonstrate market appeal. The potential introduction of AI-related key performance indicators (KPIs) also indicates that the company may have already started monetizing its AI business.

JPMorgan analyzed SAP’s implied organic Current Cloud Backlog year-on-year new additions, finding that this trend may already be reflected in the financials—the newly added amount has recently bucked the trend and surpassed the trend indicated by the value’s second derivative. Meanwhile, supported by internal AI efficiency improvements and further room to transform the workforce, the bank has increased confidence in SAP’s near-term margin sustainability.

Based on these factors, JPMorgan has raised its 2026–2028 non-IFRS EBIT (earnings before interest and tax) and EPS (earnings per share) forecasts by a low- to mid-single-digit percentage, with the main driver being greater margin expansion, and has also slightly increased its estimate for 2027 revenue growth.

Although SAP’s share price has rebounded sharply from its July low and its current valuation no longer reflects concerns about AI’s disruptive impact on the market, JPMorgan believes that the company’s earnings growth alone is enough to support an attractive investment return. According to the bank’s updated forecast, SAP’s non-IFRS EPS compound annual growth rate (CAGR) for 2026–2028 is about 17%.