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Rising risk from the risk-free rate
Higher bond yields directly threaten equity valuations as the risk-free rate drives up the cost of capital. With UK 30-year gilt yields approaching 5.9% and ten-year yields exceeding 5.2%, long-dated government securities now compete effectively with equities. Higher discount rates disproportionately reduce the present value of high implied growth, leaving US market leaders such as Broadcom, Palantir, Tesla, ServiceNow, and CrowdStrike particularly exposed, alongside European compounders like ASML and SAP. The team stresses this represents a higher hurdle rather than an indiscriminate collapse, noting that leadership can shift towards banks and energy producers. Investors should shift portfolio focus towards less aggressive valuations and undiscounted earnings growth protected by revisions momentum. Prolonged transport constraints in the Persian Gulf and Red Sea risk entrenching high inflation alongside subsiding growth, encouraging uncomfortable comparisons with the 1970s: not attractive.
SaaSpocalypse dying
Technology
Another excellent performance from Snowflake in Q2 hammers a further nail into the coffin of the SaaSpocalypse theme that had taken the sector down sharply. Richard Windsor sees the results as further evidence that enterprises will continue to need software and are increasingly turning to existing vendors to help deploy AI in a safe and controlled way - a positive read-through for Salesforce, SAP, ServiceNow and Adobe. He is less enthusiastic on SNOW itself, however, given a valuation of more than 150x FY27 P/E. Richard sees better value elsewhere and owns NOW and ADBE, which remain only around 25% of the way to his target prices.
EU Tech Sovereignty: Risk for European OEMs
Richard Windsor sees the EU’s technology sovereignty push as another example of regulation that could hurt the companies it is intended to protect. While restrictions on non-European technology providers appear supportive for local champions such as SAP, Siemens, Nebius and Mistral, he warns that limiting access to superior US technology risks making European products less competitive. Autos are the clearest pressure point: European OEMs already struggle with in-car digital user experience, while Apple CarPlay and Android Auto remain popular with consumers, and US-linked chip platforms from Nvidia, Qualcomm and Mobileye have won key infotainment and ADAS sockets on product merit. Given the pushback from industry, Richard expects that these proposals will never come into force and so if the EU can move quickly to fix the AI Act, there is still time for Europe to become relevant in AI.
Guidance warning season
Despite rising geopolitical risk, European corporate guidance has yet to reflect the potential economic impact. In AIR’s recent management meetings, discussion focused almost entirely on AI, with little attention paid to the Iran conflict despite surging energy prices and supply-chain stress that historically drive earnings revisions. The combination of unpriced macro risk and AI-driven sectoral disruption creates a credible basis for expecting a meaningful wave of 2026 earnings guidance revisions across European equities in the coming weeks. And the performance gap between the companies on the right side of these structural shifts and those on the wrong side will broaden. Stock winners include AI infrastructure beneficiaries such as Arm, Elmos, Aixtron and STM, alongside defence exposure at Exosens and Indra Sistemas. Euronext and Auto1 are also seen as largely insulated. Under pressure are Stroeer, Freenet and SES. In IT services, the sector is splitting between “The Conquerors” (Accenture, Cognizant, Reply) and “The Endangered” (Capgemini, Atos, Sage, Dassault Systemes, SAP).
Technology
SAP’s shares fell 16% on a minor shortfall in current cloud backlog growth and slightly softer 2026 cloud revenue guidance, despite FY25 results broadly meeting or exceeding expectations and strong 2026 profitability and FCF guidance. The underlying drivers reflect timing and mix effects rather than weakened demand. There is no evidence that SAP’s plan to accelerate revenue and operating profit growth by 2027 has been compromised. Cloud growth >20% by 2028 and operating margins of 30-31% by 2027 remain achievable. While investor concerns around AI agents have weighed on sentiment, SAP’s deep integration of applications, data and AI, combined with its embedded, extensible agent strategy and AI-enabled ERP migration opportunity, positions it competitively. Current valuation levels appear reasonable considering expectations for a 14% adjusted EPS CAGR over 2025-2028.
Technology
Arete upgrades SAP to Buy, citing improving demand visibility as the ECC end-of-support deadline drives renewed urgency around S/4 and cloud migrations. Based on their CIO and partner checks, sentiment towards SAP has improved in 2025 vs. 2024, especially in the last few months, with more customers accelerating or restarting migration plans. While large-enterprise resistance persists, RISE adoption has shown clear signs of improvement. Arete sees limited displacement risk from GenAI, which CIOs view as years away from impacting core enterprise platforms; instead, GenAI may act as an indirect catalyst, easing migrations via automation and code clean-up. Applying a ~30x P/E multiple to their higher FY27E EPS yields a new €270 FY26 TP, implying 30% upside.
Technology
SAP completes the acquisition of SmartRecruiters, strengthening its position in AI-powered talent acquisition, competing with Oracle and Workday; the deal enhances SAP SuccessFactors with advanced recruitment automation and candidate experience tools. However, GR20 believes what is ultimately at stake for SAP is the relevance of its AI infrastructure - ensuring it is well-positioned to benefit from the rise of AI agents in enterprise environments. They anticipate that it will take a few more quarters before SAP and its peers are able to monetise AI at scale. This will depend on customers accelerating the consolidation of their data into unified semantic models.
Technology
At Sapphire 2025, SAP reintroduced its Business Suite as a unified, cloud-based platform integrating applications, AI (via Joule) and Business Data Cloud to drive migration from legacy systems like ECC to S/4HANA Cloud. The strategy aims to streamline operations, improve scalability and enhance decision-making through embedded AI and intelligent applications. SAP is on track to meet or exceed its 2027 financial targets, supported by strong cloud transition momentum, SaaS cross-selling and SMB customer growth. Business AI is driving efficiency by decoupling expense from revenue growth. While generative and agentic AI pose near-term challenges, SAP’s deep integration, domain leadership and resilient infrastructure position it to lead in the AI-driven enterprise software landscape.
Technology
Report by
Cerundolo Investment Research
Guy Cerundolo provides a basket of long ideas in Europe. These stocks have good and improving multi-factor model scores. In addition to SAP (see chart) he also highlights companies including ASM International, Assa Abloy, CRH, Ferrovial, Philips, Rolls-Royce and Tesco.
Technology
SAP got a lift this week after announcing tough action to meet its FY25 profit goals. However, while Arete applauds the company’s efforts they struggle to get too excited. Restructurings of this magnitude are not without risk. It is also notable that SAP beat its FY23 targets on licences but scraped home at the bottom end of the range for Cloud growth. The stock is already trading on 23x FY25 FCF if it hits these goals. Arete would rather own Salesforce which trades at a similar valuation but is a much better asset.
Technology
SAP is guiding for cloud revenues to reach €14.1bn (+25% Y/Y) in FY23, suggesting growth will be far stronger in H2 vs. H1, in total contradiction with the current economic slowdown and competitors’ recent comments. Pierre-Olivier Essig struggles to share management’s bullishness which has led to him downgrading the stock to Sell (from Buy). His new TP is €100 (previously €140).
AIR continues to boast an enviable track record with impressive gains on Buy-rated stocks including Aixtron, Meier Tobler, Novo Nordisk and Rolls-Royce, as well as shorts including Fresenius Medical Care and Grifols.
Technology
Report by
Starling Advisors
Growth is far from over - SAP's cloud business is set to grow over 20% p.a. through 2025, driven by a push to migrate on-premise legacy ERP customers to the S/4HANA cloud as well as an increase in cross-selling key solutions including Business Technology Platform (BTP). This momentum will accelerate medium-term sales growth and increase operating profit. Furthermore, the Business AI opportunity is just at its infancy, with enormous opportunity ahead, as generative AI will change the way business run. Alex Dwek believes SAP is well positioned to capture growth in a new AI era and has the potential to re-rate to multiples enjoyed by its 'pure play' cloud peers.
Technology
Appears on ROCGA’s list of undervalued ideas - using their proprietary Cash Flow Returns On Investments based valuation tools, they have started a new product to identify companies on the spectrum ranging from undervalued to overvalued. This list can be easily modified to cover specific geographies, industries, M/Cap... ROCGA currently covers c.2000 companies across Europe and the US. More details on their systematic and interactive valuation tools can be found here. A trial can be arranged on request.
Technology
67% of Woozle’s sources* reported positive outlooks for the next 6 months. New business has started to pick up again and SGE appears poised to win market share, especially among SMEs, as well as a growing presence in the enterprise market with the expansion of Intacct. Competitive pricing, product simplicity and flexibility with SaaS has put the software company on pace to beat 1H23 consensus estimates.
*Woozle conducted interviews with ERP software resellers, channel partners and consultants. Their sample evenly reflects both SAP and SGE, with some sources selling both brands, as well as Oracle and Microsoft. Regional split: 60% Europe / 40% N.America.
