SAP’s Strong Momentum: A Bullish Setup for Investors

Key Points

• SAP shares gained 75% last year as they built on the rally that started in late 2022. 
• Recent upgrades suggest further bullish momentum is coming, with next week's earnings a likely catalyst. 
• Even with shares at all-time highs, fresh price targets are calling for further gains of 20%.

Shares of SAP SE NYSE: SAP, the German software giant, have had an incredible run over the past couple of years. The rally that started in late 2022 has shown no signs of slowing down, with shares gaining 230% since then, including a 75% surge last year alone. This momentum repeatedly propelled SAP to fresh all-time highs throughout 2024, and there are plenty of reasons to think the story isn't over. 

The German-headquartered SAP specializes in enterprise resource planning (ERP) software and can boast of a 53-year history that has seen it acquire a market cap north of $300 billion. With just three weeks gone of the new year, 2025 is already shaping up to be another banner year for the company. Let's jump in and take a look.

SAP's Fundamental Performance

Starting with fundamentals, it has to be said that SAP's performance throughout 2024 was a mixed bag. Surprisingly, given the stock's stellar gains, its quarterly earnings weren't the consistent blowouts one might expect. For example, in October, SAP missed revenue expectations, while April's report fell short on both revenue and earnings. However, those misses didn't deter investors. 

Heading into SAP's first report of 2025 next week, expectations are high. Investors will be watching closely for another record revenue print and, ideally, beats on both headline numbers. The company can say that its revenue growth hit record highs during the year, and management's bullish stance, supported by multiple increases to forward guidance, suggests that the rally should continue gaining momentum from this.

Is SAP Still a Buy? Analysts See Upside as 2025 Begins

On the analyst's side, updates on SAP have been surprisingly sparse for a stock that has delivered such consistent gains, though still overwhelmingly bullish. The last notable updates came in October 2024, when a flurry of Overweight and Outperform reiterations followed the company's earnings. Since then, it's been quiet - until last week.

SAP just received two fresh upgrades, with the teams over at Kepler Capital Markets and TD Cowen both upgrading their ratings from Hold to Buy. The results from a recent survey were singled out, as they suggested increasing demand for cloud-based ERP solutions, with AI advancements accelerating enterprise migrations.

TD Cowen's new price target of $305 is well worth considering; from where the stock closed last night, that's a targeted upside of some 20%. 

All-Time Highs: Should Investors Be Cautious About SAP Stock?

It can be scary, though, to buy into a stock that's trading at an all-time high. Despite its stellar performance, the company has struggled to consistently beat analyst expectations in its earnings report, a factor that would normally weigh heavily on a stock with such a strong rally behind it.

In another company, this inconsistency might have triggered a pullback. For SAP, though, bullish momentum and investor confidence have helped it dodge these pitfalls so far. That said, with shares trading at highs, new investors face the risk of being exposed to a potential earnings miss next week. At the same time, however, the increasing demand for ERP solutions and the recent upgrades suggest SAP is well-positioned for continued growth, and any pullback could be considered a solid entry opportunity. 

SAP’s Technical Setup Suggests More Room to Run

From a technical perspective, SAP's setup provides yet another reason for optimism. The stock's Relative Strength Index (RSI) currently sits at 66, a bullish signal suggesting there's strong momentum with plenty of room for it to run before hitting overbought levels.

All in all, SAP is in a good spot heading into 2025. Wall Street was able to look past the inconsistent beats last year and focus instead on management's optimistic outlook, a trend that will be hard to change. The stock is also continuing to enjoy bullish ratings and updates from the analysts, with the fact that last week saw two teams remove their Hold ratings especially pertinent. 

Investors should look for SAP shares to continue rallying into next week's report, with a beat likely to fuel further gains and a miss potentially setting up an attractive entry opportunity for those who are happy to buy into the company's longer-term potential.