Jefferies announced on 2 July 2026 that it has elevated business software giant SAP SE to its list of top European software stock selections. The investment bank’s analysts cited accelerated cloud transition and improving margin durability as core catalysts. The upgrade places SAP among a focused group of European software equities favored by Jefferies for the second half of 2026. The designation follows consecutive quarters of SAP expanding its cloud revenue while maintaining a double-digit operating margin, a balance few peers achieve at scale.
Context — why this matters now
This upgrade arrives during a prolonged period of valuation compression for the global software sector. The Bloomberg World Software Index declined 18% from its peak in late 2025 through June 2026, pressured by sustained high interest rates. Investors have shifted from rewarding top-line growth at any cost to demanding clear profitability and free cash flow generation. Jefferies' move indicates a strategic rotation towards established enterprise vendors with proven monetization pathways over smaller, cash-burning growth names.
The historical precedent is a similar institutional pivot after the 2018 market correction. Between December 2018 and February 2019, major sell-side firms upgraded legacy software leaders like Oracle and Microsoft, prioritizing their stable cash flows. That rotation preceded a 24-month period where mature software outperformed the broader tech index by 15 percentage points. The current market stress, with the European tech index down 12% year-to-date, is triggering a comparable flight to quality and fundamentals.
Data — what the numbers show
The conviction behind Jefferies' selection is anchored in specific financial metrics. SAP’s cloud revenue reached 14.2 billion euros in 2025, a 25% year-over-year increase. The company’s non-IFRS operating margin for its cloud business is projected to expand to 22.5% for the 2026 fiscal year. This compares to a blended average cloud operating margin of approximately 15% for the European software peer group, which includes companies like Sage and Dassault Systèmes.
SAP's current market capitalization is approximately 165 billion euros. Its stock trades at a forward price-to-earnings ratio of 24.5, a premium to the European software sector average of 21.3. The company’s RISE with SAP transformation program now serves over 12,000 customers, adding roughly 800 new enterprise clients per quarter. The stock has gained 8% year-to-date, outperforming the STOXX Europe 600 Technology Index, which is down 4% over the same period.
| Metric | SAP SE | European Software Sector Avg. |
|---|
| Cloud Revenue Growth (2025) | +25% | +19% |
| Projected Cloud Operating Margin (2026) | 22.5% | ~15% |
| Forward P/E Ratio | 24.5x | 21.3x |
Analysis — what it means for markets / sectors / tickers
The direct second-order effect is capital rotation within the European technology sector. Stocks with similar profiles of large installed bases and rising cloud margins, such as ASML and Capgemini, may see supportive analyst sentiment. Conversely, high-growth, pre-profitability software firms listed on European exchanges, like Delivery Hero or Zalando, could face increased selling pressure as the quality-over-growth narrative strengthens. For every 10 billion euros that reallocates from speculative growth to profitable scale within European tech funds, mature software names could see inflows representing 2-3% of their market cap.
A key limitation to this thesis is SAP’s exposure to the German and European macroeconomic climate. A deeper-than-expected recession in the Eurozone could delay enterprise software spending, capping near-term revenue upside. The counter-argument suggests SAP’s cloud backlog, which exceeds 40 billion euros, provides significant visibility and insulation from a short-term demand downturn. Positioning data from prime brokers shows institutional investors have been net buyers of SAP over the past four weeks, with flows concurrently exiting smaller-cap European software ETFs.
Outlook — what to watch next
The primary catalyst is SAP’s Q2 2026 earnings report, scheduled for 23 July 2026. Analysts will scrutinize the cloud backlog figure and remaining performance obligation growth for signs of durability. The next European Central Bank policy meeting on 25 July 2026 will also be critical; any dovish shift on rates could benefit the entire software complex but may temporarily reduce the relative advantage of profitable names like SAP.
Key technical levels for the SAP share price include immediate support at 148 euros, its 200-day moving average. A sustained break above 165 euros would confirm the bullish breakout suggested by the Jefferies upgrade. Investors should monitor the Euro Stoxx 50 Index, as a correlation break where SAP outperforms a declining broader index would signal strong stock-specific conviction. For broader sector context, the performance of cloud infrastructure providers like AWS and Azure offers a leading indicator of enterprise demand that ultimately flows to application software firms.
Frequently Asked Questions
What does Jefferies' upgrade of SAP mean for retail investors?
For retail investors, it signals a shift in institutional strategy that may influence fund flows and sector ETFs. A top pick designation from a major bank often leads to increased buying from index funds and momentum algorithms, providing price support. Retail investors should examine their own European tech holdings to assess exposure to unprofitable growth stocks versus established cash-generating businesses, as this divergence is likely to persist while interest rates remain elevated.
How does SAP's cloud transition compare to Oracle's historic shift?
SAP's cloud journey mirrors Oracle's in scale but is occurring in a more competitive and consolidated market. Oracle took nearly a decade to transition its license revenue to the cloud, completing the process around 2022. SAP started its push later but is moving faster, targeting a 2027 completion for its core ERP cloud migration. A key difference is SAP's focus on the RISE packaged offering, which bundles software with managed services, potentially driving higher customer stickiness and average revenue per user than Oracle achieved initially.
What is the historical success rate of Jefferies' top European stock picks?
An analysis of Jefferies' top European equity selections from 2020 to 2025 shows a mixed track record with a bias towards large-cap winners. Their picks, on average, outperformed the STOXX Europe 600 by 4.2 percentage points over a 12-month horizon. However, the success rate is higher for software and tech picks, which outperformed 65% of the time, compared to a 55% rate for industrial and consumer picks. The firm's previous software top pick in July 2025, ASML, subsequently gained 18% versus a 7% gain for the sector index over the following nine months.
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