UBS upbeat on SAP as AI drives cross-selling and cloud growth momentum

Investing.com -- UBS Global Research remains positive on SAP (ETR:SAPG), citing artificial intelligence as a key driver of cross-selling momentum across its enterprise application suite.

In a note dated Friday, UBS analysts said SAP’s AI-focused strategy, showcased at its SAPPHIRE event, is helping the company expand wallet share among existing clients. 

The brokerage noted that only 23% of SAP’s cloud customers currently use four or more SAP solutions, but these customers contribute 74% of cloud revenue, up from 65% a year ago. UBS views this as a sign of successful integration efforts and a stronger monetization strategy.

The analysts highlighted SAP’s push to embed AI across its Business Data Cloud and broader software portfolio. 

The company plans to grow its AI use cases to more than 400 by the end of the year, up from 230 currently. 

UBS said SAP’s standardized data models across applications like finance, HR, and supply chain make it easier to deploy AI, but execution remains key.

Cross-sell and upsell momentum is evident beyond SAP’s RISE migration program. UBS estimated that of the €10 billion increase in SAP’s cloud revenue over the past four years, nearly €4 billion came from upsell and cross-sell initiatives. 

New customers added since 2020 are contributing about €2 billion in annualized revenue, with an average growth rate of 20% per year.

UBS analysts said the upgrade cycle still has room to run. Only about €1 billion of SAP’s maintenance revenues have migrated to the cloud so far, suggesting untapped potential. 

The brokerage pointed to the use of transformation credits as a current headwind to growth, but one that could become a tailwind as these credits are amortized and expire.

At SAPPHIRE, SAP introduced AI-powered tools such as People Intelligence for HR and Cloud ERP Intelligence for operations. 

UBS noted these products aim to automate and optimize decision-making by integrating transactional and analytical data, reinforcing SAP’s data leadership in areas like master data management.

UBS revised its 2026 free cash flow estimate for SAP to €8.8 billion from €9.4 billion, citing currency effects and customer drawdown of transformation incentives. 

Nonetheless, it raised the 12-month price target to €307 from €265, reflecting higher confidence in SAP’s longer-term growth trajectory and improved margin outlook. 

The target assumes a higher valuation multiple for SAP’s cloud business, moving from 7.5x to 10x 2027E EV/Sales.

Despite some caution on meeting the upper end of SAP’s 26–28% 2025 cloud revenue growth goal, UBS said the company is well-positioned.