SAP is down 45% YTD in a broad software selloff however it is not the same as most software companies
SAP has been getting lumped in with the broader software selloff and I think that's a serious mispricing. Let me explain why this situation is different.
The moat is almost comically deep. Around 90% of Fortune 500 companies run on SAP. Not "use a product from SAP" their entire ERP backbone, their supply chain, their financials, their HR it all runs on SAP. Switching isn't a vendor negotiation, it's a multi-year, nine-figure migration project that disrupts every department. The switching costs aren't just high, they're existential for most CFOs to even contemplate. This is a different category of customer lock-in than your typical SaaS churn story.
The selloff narrative doesn't actually apply here. The market is punishing software multiples on fear of slowing growth and AI disruption. But SAP isn't a growth-at-all-costs SaaS play that depends on net new logos. They have recurring revenue baked in from companies that literally cannot leave. The repricing feels like the market forgot what kind of software business this actually is.
The AI angle is being set up properly. SAP recently announced a partnership with n8n to integrate AI directly into enterprise workflows. This isn't bolting on a chatbot. This is embedding AI into the actual processes companies run their business on procurement, finance, logistics. They're positioning themselves as the infrastructure layer for enterprise AI rather than a disruptable point solution. That's the right play.
New board member Rene Obermann joining from Warburg Pincus is a strong signal. Obermann isn't just a name he has a track record of operational transformation and capital allocation discipline. Warburg Pincus backing him into this role suggests there's a real thesis around unlocking value here, not just governance optics.
The institutional floor is probably stickier than most people realize. SAP is a cornerstone holding of German pension funds and institutional investors who have held it for decades. That's not a trivial support level. The forced-selling risk you'd worry about with a momentum name just isn't the same here.
At current prices you're getting one of the most entrenched enterprise software businesses in the world at a discount driven by a macro sentiment that doesn't really apply to its business model.
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