AI transformation dividend strengthens profit growth logic! SAP (SAP.US) upgraded by JPMorgan to "Overweight," target price jumps to EUR275

JPMorgan, in its latest research report, upgraded SAP (SAP.US) from "Neutral" to "Overweight," because as artificial intelligence (AI) moves from the pilot stage to full-scale deployment, the bank believes this shift will benefit Systems of Record vendors such as SAP. At the same time, the bank believes SAP's own AI products are also continuously improving. The bank raised its target price for SAP's European-listed shares from EUR175 for December 2027 to EUR275 for December 2028, implying upside of about 30%. JPMorgan stated in the report that in the early stages of the AI development cycle, as enterprises rushed to experiment, the market's focus briefly shifted to AI prototype development. However, as various projects move from the pilot stage to full-scale deployment with the help of Agents, customers are gradually discovering that achieving scaled adoption and return on investment (ROI) depends on far more than the models themselves, but also on three key factors: Context, namely clean, unified data and business semantics that ensure agents can understand the enterprise's business; Control, namely security, permission management, and governance mechanisms that ensure agents' actions are trustworthy; and Cost, namely the ability to achieve predictable, manageable spending at scale. JPMorgan's assessment of system integrator (SI) industry dynamics over the past year shows that enterprises are increasingly recognizing that these factors are key to operating AI at scale, and this trend benefits incumbent Systems of Record vendors such as SAP. JPMorgan also believes that SAP's own AI products are improving. The bank's surveys of customers and partners also show that its products have improved and have begun to show initial market traction. The potential launch of AI-related key performance indicators (KPIs) also indicates that the company may have begun to monetize its AI business. JPMorgan analyzed the implied year-over-year increase in SAP's organic Current Cloud Backlog, and the results show that this trend may already be reflected in the financial datathe recent increase has moved upward against the trend, breaking through the trend indicated by the second derivative of the values. At the same time, supported by internal AI efficiency gains and room for further workforce transformation, the bank is more confident in the sustainability of SAP's near-term margins. Based on the above factors, JPMorgan raised its 2026 to 2028 non-IFRS earnings before interest and taxes (EBIT) and earnings per share (EPS) forecasts by a low-single-digit to mid-single-digit percentage, mainly DRIVE by greater margin expansion, while slightly raising its 2027 revenue growth forecast. Although SAP's share price has rebounded significantly from its July low and the current valuation no longer reflects market concerns about AI disruption, JPMorgan believes that the company's earnings growth model alone is sufficient to support attractive investment returns. According to the bank's updated forecasts, SAP's non-IFRS EPS compound annual growth rate (CAGR) from 2026 to 2028 is approximately 17%.