SAP rated Buy as AI initiatives boost cloud growth and margins despite recent stock drop.

SAP SE is rated Buy due to its recent AI-driven initiatives expected to accelerate cloud backlog and revenue growth. Cloud sales now make up 62.4% of total sales, with AI tools and autonomous enterprise goals aiming for a €2 billion revenue increase by 2028. In Q1, cloud revenue grew 19% year-over-year, with a 280 basis points margin expansion, despite earlier slowdown in cloud backlog. The stock has dropped nearly 19% year-to-date, but its valuation at 23.5 times forward earnings suggests potential for multiple expansion if cloud momentum continues, narrowing the valuation gap with peers like Microsoft.