What Makes SAP SE (SAP) an Attractive Investment?

Sustainable Growth Advisers (SGA), an investment management company, released its third-quarter investor letter for its “Global Growth Strategy.” A copy of the letter can be downloaded here. The portfolio returned -2.3% (Gross) and -2.5% (Net) in the third quarter, compared to a 7.6% return for the MSCI ACWI and a 9.0% return for the MSCI ACWI Growth. The index returns were fueled by enthusiasm for AI, whereas factors aligned with SGA’s strategy, like quality and sales stability, lagged. SGA’s investment objective is to invest in high-quality growth businesses expected to achieve consistent mid-teens earnings growth, accompanied by stable revenue and cash flow.  In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, SGA Global Growth Strategy highlighted stocks such as SAP SE (NYSE:SAP). SAP SE (NYSE:SAP) is a leading enterprise application and business solutions provider. The one-month return of SAP SE (NYSE:SAP) was 2.49%, and its shares lost 4.10% of their value over the last 52 weeks. On January 2, 2026, SAP SE (NYSE:SAP) stock closed at $236.92 per share, with a market capitalization of $276.437billion.

SGA Global Growth Strategy stated the following regarding SAP SE (NYSE:SAP) in its third quarter 2025 investor letter:

"SAP SE (NYSE:SAP) is the global leader in enterprise resource planning (ERP) application software, with its flagship Business Suite helping organizations automate and improve operations, supply chains, finances, customer relationships, and partner collaborations. Founded in 1972 and based in Germany, SAP serves over 100,000 customers in more than 120 countries, targeting large enterprises, small-to-medium businesses, government agencies, and educational institutions. The company is broadly diversified by customer, geography, and industry, and generates significant free cash flow from highly recurring, high-margin software maintenance and cloud subscription fees. SAP operates in an oligopolistic industry, enjoying strong pricing power on maintenance, support, and cloud contracts, with 80% of revenue and an even larger portion of profits coming from recurring cloud subscription and software maintenance fees. The enterprise application software market is expected to grow annually at mid-to-high single-digit rates. As clients upgrade to SAP’s cloud solutions, including the S/4 Hana ERP platform, the transition from license to subscription is expected to produce more predictable and substantial recurring cash flows over time. SAP’s recent results demonstrate effective selling of cloud subscription products, with over 25% organic order growth.

Some key risks we are considering include competition from cloud-native rivals, elevated growth expectations, and recent management turnover. However, SAP’s core ERP solutions have high switching costs that minimize competitive pressures, especially in manufacturing. SAP’s strong recurring revenue base, resilient performance during economic stress, and ongoing improvements in operating margin and cash flow position it well for double digit revenue growth and even higher operating profit and free cash flow growth over the next three years. We initiated a below-average weight position and will continue to build it opportunistically going forward."

SAP SE (NYSE:SAP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held SAP SE (NYSE:SAP) at the end of the third quarter, which was 32 in the previous quarter. While we acknowledge the potential of SAP SE (NYSE:SAP) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered SAP SE (NYSE:SAP) and shared Aoris International Fund's views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.