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Investing.com -- Bank of America (BofA) has added SAP (NYSE:SAP) (ETR:SAPG) to its top 10 Europe, the Middle East and Africa (EMEA) Ideas list for the third quarter of 2025, reaffirming its Buy rating and €320 price objective.
SAP is BofA’s top large-cap software pick and features on both its “25 Stocks for 2025” and Europe 1 list of top ideas.
Analysts highlight multiple drivers behind the bullish stance. These include strong revenue visibility, underpinned by 95% recurring revenues and a 29% cloud backlog growth in Q1, as well as structural operating leverage and potential for increased cash returns.
Moreover, BofA notes that SAP’s internal use of AI is driving 30% efficiency gains and that “Gen AI traction is rising, with 34k customers using Business AI.”
“Feedback from the new Business Data Cloud offer from channels is very promising, while SAP flagged a record initial pipeline since launch,” analysts led by Frederic Boulan wrote.
They also pointed to a favorable medium-term outlook. BofA expects support revenue in 2026–2027 to translate into more than five times Cloud revenue, compared to two to three times previously.
Free cash flow is forecast to trend toward taxed EBIT plus €1 billion, while margins are projected to expand by roughly 100 basis points annually.
SAP’s valuation is described as reflecting a premium to the stock’s historical levels but justified by strong revenue and earnings per share (EPS) growth, including an expected 20% EPS compound annual growth rate (CAGR) from 2024 to 2027.
“SAP trades at a limited premium to U.S. Software (ETR:SOWGn) peers Salesforce (NYSE:CRM) and Microsoft (NASDAQ:MSFT) despite significantly faster growth,” analysts said, adding that the stock is priced at over a 50% discount to Workday (NASDAQ:WDAY) despite similar growth.
Ahead of Q2 earnings on July 22, BofA expects group revenue growth to accelerate to 11%, with a strong operating margin of 27.4% and EBIT growth of 32% year-on-year.
The bank also expects SAP to reiterate 2025 guidance, supported by cloud orders and progress on its Gen AI delivery pipeline.