In 2020, SAP embarked on a renewed strategy for the largest business model shift in its history.
The mission was to catalyse and accelerate customer adoption of its reinvigorated cloud software portfolio, unlocking new capabilities and efficiencies for its customers while expanding market opportunities for SAP. It was effective. Since that time, SAP has delivered strong annual growth in its cloud ERP business (over 30% growth in 2025). Yet only a few years in and still at the relatively early stages of its successful multi-year growth runway, SAP now faces a new emergence in the technology landscape that many are perceiving to be a disruptive threat to its peers. Is AI about to eat the software that has been eating the world?
Enterprise software is home to some of the best business models in the world, and nowhere is this more evident than in ERP (Enterprise Resource Planning). ERP is the central nervous system of the enterprise, powering mission-critical processes across the organisation in a seamless suite of integrated software. Companies simply cannot run without it.
SAP is the market leader in ERP and related application software, formed through decades of expertise since its founding in 1972. This leadership is evident in the fact that 99 of the 100 largest companies in the world run SAP, and 84% of total global commerce volume is generated by SAP customers. Its solutions span many functional areas including finance, procurement, human resources, and warehouse and transportation management.
AI is already having an effect on the software industry, but its impact will vary significantly across the spectrum of vendors. Software is as diverse as the applications and industry verticals it serves. We will see some vendors disrupted. By the same token, we will see winners among the vendors who are able to leverage AI in a differentiated way. SAP is among the best-positioned software vendors to capture the AI opportunity, rather than be disrupted by it, in our view.
Rapid advancements in AI offer potential to solve new problems or to operate more effectively, and companies are increasingly looking towards leveraging it. The rich proprietary data flowing through ERP systems make SAP particularly well-suited to deliver these solutions. Integrating AI can help companies extend workflow automation, enhance predictive analytics, and improve decision-making. SAP’s position as the system of record for its customers’ core operational data puts it in the privileged position of having the richest insights and contextual awareness on which AI depends to unlock value. This is not a position that can be replicated by vibe coding.
Nor can SAP’s trusted position as a proven partner powering many of the most complex organisations in the world across 26 industries with deep expertise. The critical role ERP plays for enterprise customers to run their businesses makes the cost of errors high, and customers are better served by leaning on SAP to exploit the power of AI rather than subject their operations to unnecessary risk. SAP has always solved complexity, and AI is the new layer of complexity.
ERP and related application software have been around for decades, but the innovation pipeline is more exciting than it has ever been. Cross-border complexity is rising. Supply chains are becoming more sophisticated. Emissions-reporting frameworks require new ways to track and manage climate-related disclosures.
AI is another opportunity for SAP to expand its footprint within its customers and adds impetus for these customers to adopt SAP’s cloud products, providing a runway for significant growth in the years to come.
Adrian Lu
Senior Investment Analyst
Sources: Company filings
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