In an industry dominated by large American companies, SAP is a rare technology giant born and raised in Europe. Investment Analyst David Gorman discusses how the German technology business is assisting customers in making the most of AI capabilities. 

AO or Artificial Intelligence or AI is the ability of a machine to display human-like capabilities such as reasoning, learning, planning and creativity. We’ve all heard about AI-generated deepfakes and the kind of disinformation that can affect elections or endanger cybersecurity. And what about the threat to jobs posed by AI? All valid points, but what about the benefits of AI? We’ve been enjoying these for many years already. Think about your smartphone, or a web search or the software in your car. Nearly everything we come across in our daily lives is already touched by AI and it is here to stay. 

Nearly everything we come across in our daily lives is already touched by AI and it is here to stay. 

One company helping its customers make the best use of AI is the German business SAP AG, whose shares we own in our CFP Castlefield Thoughtful European Fund. Established in 1972 by five former IBM employees and based in Walldorf, near Heidelberg, the name SAP stands for Systemanalyse Programmentwicklung, or System Analysis Programme Development. These days, SAP is probably best known as the world’s largest vendor of enterprise resource planning or ERP software.

Traditional business models in larger enterprises tend to decentralise data management, with each business function storing its own operational data in a separate database or silo. This makes it difficult for employees from different business functions to access each other’s information. Such duplication of data across multiple departments also increases IT storage costs and the risk of data errors. [1]

ERP software can help with all this. It includes programmes for all major business areas, such as procurement, production, materials management, sales, marketing, finance and HR. SAP software helps companies better manage complex business processes by giving employees in different departments easy access to real-time insights across the whole enterprise. As a result, businesses can accelerate workflows, improve operational efficiency, raise productivity, enhance customer experiences and ultimately increase profits. By centralising data management, SAP software gives multiple business functions a single view of the truth.

SAP has offices in 130 countries and employs over 100,000 people. [2] It has more than 480,000 customers globally. [3] Customers tend to be medium-to-large enterprises and include some of the world’s biggest companies. 

In recent years, SAP has successfully shifted its business model away from selling on-premises licences towards Software as a Service, or SaaS, in the form of cloud service contracts. These contracts allow companies to access resources such as computing power, storage and software applications over the internet without having to own or manage all the equipment themselves. This gives the client less to worry about and allows them to focus on growing the business without worrying about their IT infrastructure.

When it comes to sustainability, SAP performs extremely well in its own right, receiving high grades from the major ESG ratings agencies.

When it comes to sustainability, SAP performs extremely well in its own right, receiving high grades from the major ESG ratings agencies. [4] It also advises clients on sustainability and helps them with their reporting, through products such as the SAP Sustainability Control Tower, [5] which helps companies gather and make sense of disjointed data from multiple sources, for example greenhouse gas emissions or water use at multiple sites. 

According to an article in the Harvard Business Review, [6] SAP used AI itself to address the small and medium enterprises (SME) market, a sector it had previously failed to penetrate. Many SMEs saw SAP as an expensive, big-company solution and its in-person and consultative sales approach to big customers was too expensive and the sales cycle too long for small order sizes in the fragmented SME market. SAP needed a different approach to sell to these customers.

In response, SAP deployed more than 40 AI tools to map the sales process for SMEs and consequently changed the way it sells to these customers, shortening the time it takes to win a new client from 12–18 months to 3–6 months. 

The move to the cloud also helped SAP reach many more potential SME clients. A new subscription model reduced upfront costs for clients and offered flexibility and scalability to help them grow. Using the cloud also offered more opportunities for SAP to customize and distribute its software. 

In an industry dominated by household name American companies, SAP is a rare technology giant born and raised in Europe. The company is listed in Frankfurt and is one of the largest companies by market capitalisation in the EU, vying with the likes of Novo Nordisk, LVMH, Hermes and ASML (whose shares we also own) for the honour of being biggest. [7]

As investors, we like SAP because it is a global leader in the provision of vital business services to a very wide range of end customers. The group has an excellent record of generating shareholder value over the past two decades [8] and we expect this to continue in the future. 

Written by David Gorman  

Information is accurate as at 17.04.2025. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment, capital is at risk.