What just happened? German software giant SAP has overtaken Danish healthcare company Novo Nordisk to become Europe's most valuable company. SAP's stock has performed exceptionally well, rising more than 40 percent over the past year. The firm's success is largely driven by its strategic shift toward cloud-based services and increasing focus on AI, both of which have strongly resonated with investors.
SAP's journey began in 1972 when five former IBM employees founded the company in Germany. Initially focused on business process management software, SAP has continually evolved to meet changing needs. A key milestone in this evolution was its shift from traditional on-premise software licenses to cloud-based service contracts, a more predictable and lucrative business model.
In recent years, SAP has made significant strides in AI integration across its business solutions. This includes embedding AI directly into core operations, leveraging the SAP Business Technology Platform, and expanding its portfolio of AI-driven features.
SAP's strong foothold in the cloud and AI sectors has been a major driver of its growth. Analysts project a 29 percent increase in cloud revenue this year, contributing to an overall revenue rise of 13 percent to €38.5 billion.
SAP's dominance is also evident in its growing influence on the German stock market. The company now represents a larger share of the DAX index than the country's historic automotive sector, which includes giants like Volkswagen and Mercedes-Benz. In response, Deutsche Börse introduced an uncapped version of the index to better reflect SAP's expanding weight.
Despite recent stock fluctuations, SAP remains largely insulated from Europe's economic challenges, thanks to its strong presence in the US. In the fourth quarter alone, SAP generated €2.9 billion in US sales, accounting for 31 percent of its total revenue. This diversified market reach has positioned SAP as a key driver of the Stoxx 600 Index's 30 percent gain since late 2022, with its stock surging over 150 percent during that period.
CEO Christian Klein remains optimistic about SAP's future, emphasizing its strong position in data and business AI as key drivers of revenue growth through 2027. While the rise of cheaper AI models like DeepSeek has sparked concerns about profitability, Klein argues that these advancements will ultimately increase demand for SAP's AI services.