From the cooperation between Alibaba and SAP, looking at the "certainty" logic of AI in the capital market

On May 27, 2025, a significant piece of news connected two tech giants from Asia and Europe, with one side being China's Alibaba and the other being Germany's SAP.

SAP, the European software giant, has seen its market value soar significantly over the past year due to strong growth in its AI business, making it the highest-valued company in Europe. As the largest weighted stock, it has driven the German DAX index to continuously reach new historical highs despite a weakening economic fundamental backdrop.

According to the cooperation agreement, SAP will explore the integration of Tongyi Qianwen's large model and support enterprises in deploying SAP ERP Cloud and SAP ERP private cloud versions on Alibaba Cloud. Both parties will jointly expand their enterprise-level market customers, initially focusing on the Chinese market and gradually expanding to Southeast Asia, the Middle East, and Africa.

SAP's stock price continues to reach new highs, proving that AI remains the core "narrative theme" in the current capital market, influencing investor sentiment and the flow of capital.

SAP's AI Surge: Leading DAX to New Heights Amidst the German Economic Chill?

Over the past year, SAP has performed remarkably in the European capital market. Although its AI advancements have not sparked market discussions and stock price surges like Alibaba's at the beginning of the year, SAP has quietly become the most notable star stock in Europe thanks to its AI strategy.

As of 2025, its stock price has risen by 25% since the beginning of the year, with a staggering 60% increase over the past 12 months, and the company's market value has exceeded 300 billion euros, making it the largest company by market value in Europe.

As the highest-valued component stock in the German DAX index, SAP's strong performance is undoubtedly a key driver for the entire index, which has continuously set historical highs. The DAX index performed strongly, rising 18.85% in 2024, and by early May 2025, it had achieved a 15.96% increase.

However, this fervor in the capital market sharply contrasts with the overall "temperature difference" in the German economy. The German economy contracted by 0.2% in real terms in 2024, and the European Commission predicts stagnation in 2025. Export prospects are under pressure, and the unemployment rate faces a slight increase risk.

This contrast raises thought-provoking questions: Is the impressive performance of SAP and the DAX index, led by tech stocks, a reflection of high-quality assets decoupling from macroeconomic fundamentals driven by AI, or is it merely an "anomaly" in a specific context? The capital market's faith in AI seems to be creating a new value assessment logic.

1) SAP's AI Engine: From Joule to Business Data Cloud

The reason SAP can stand out in the wave of AI is its clear AI strategy and a series of innovative products.

Joule – The Ubiquitous AI Assistant: Joule is SAP's flagship generative AI tool, aimed at helping users increase productivity by 30%. What makes Joule unique is that it is not only embedded in SAP's own application ecosystem but also supports non-SAP applications such as ServiceNow, Gmail, and LinkedIn, striving to become a "ubiquitous, proactive AI assistant."

In addition, Joule plays the role of an accelerator in the process of enterprises migrating to SAP Business Suite, reportedly shortening migration time by 35%. Bank of America analysts point out that Joule's cross-platform capability is a key component of SAP's vision to transform into a "Suite as a Service" provider, while Morgan Stanley emphasizes Joule's goal of enhancing user productivity by 30%.

Business Data Cloud (BDC) – The Data Cornerstone of AI: If Joule is the application layer of AI, then Business Data Cloud (BDC) is the data foundation of SAP's AI strategy. The core value of BDC lies in helping enterprises integrate and manage vast amounts of data from both within and outside SAP systems, particularly through partnerships with companies like Databricks to effectively handle unstructured data. SAP expects the market size for BDC to reach $300 billion by 2028, with a compound annual growth rate of 24%. Initial market feedback has been enthusiastic, with order reserves setting records since the product launch.

Morgan Stanley believes that BDC is a "key strategic initiative" for SAP, addressing its previous shortcomings in integrating heterogeneous data. Bank of America Securities has dubbed BDC a "game changer," believing that market demand "exceeds expectations."

SAP's Broader AI Landscape and Ecosystem Building: SAP's AI ambitions are not limited to Joule and BDC. The company has proposed a strategy of "AI Everywhere," aiming to become a leader in "Suite as a Service." Currently, 34,000 customers have adopted SAP's commercial AI solutions, delivering over 230 generative AI scenarios, with plans to reach 400 by the end of the year. SAP has also launched the AI Foundation platform, aiming to develop it into an operating system for AI development and operations.

At the same time, through collaborations with companies like Perplexity and Palantir, SAP is continuously expanding its AI capabilities and building an open and powerful AI ecosystem.

2) AI Reshaping SAP's Financial Narrative

Investments in AI ultimately need to translate into tangible business value and financial returns, and SAP has a clear plan for this. Its AI commercialization model is evolving from the initial AI unit quota payment to a hybrid model that includes monthly user-based payments (with high-end AI service monthly fees ranging from €7 to €70) More importantly, AI has been deeply integrated into SAP's financial goals and growth expectations: SAP anticipates that its support services revenue of up to €11 billion is expected to convert into more than five times the cloud services revenue in the future (previously expected to be 2-3 times), with AI-enhanced cloud products being the key to achieving this goal.

The contribution of AI to the "Rule of 40" (the sum of revenue growth rate and profit margin being greater than or equal to 40%) is also indispensable. SAP aims to reach around 35% by 2026/2027, with AI simultaneously aiding revenue growth and profit margin expansion. Morgan Stanley pointed out that SAP's efforts to improve profit margins are "far from over."

The application of AI within enterprises has also brought significant efficiency improvements, such as SAP itself achieving a 30% efficiency gain, with R&D efficiency increasing by as much as 30%, all of which directly contribute to the improvement of profit margins.

Both Morgan Stanley and Bank of America Securities believe that AI is the core driving factor for SAP's growth and valuation reshaping. Morgan Stanley predicts that SAP's earnings per share (EPS) growth for the fiscal year 2026/2027 will reach 17-18%, with the potential to exceed 20%.

3) Market Feedback and Analyst Consensus: The Appeal of the AI Story

At the recently concluded Sapphire annual conference, the positive feedback from the market was evident. "The long-lost enthusiasm has returned," with customers actively participating and partners generally holding a positive view on SAP's technological direction and demand.

Bank of America Securities stated after the conference: "SAP's ambitious product pipeline and positive feedback from partners further enhance our confidence." Morgan Stanley also noted: "After the Sapphire conference, we are more confident in SAP's short-term demand and its ability to continue accelerating revenue and profit expansion," and listed SAP as a "preferred stock" in the European software industry.

The strong AI narrative is supporting SAP's high valuation. Morgan Stanley believes that SAP's current expected price-to-earnings ratio of about 37 times for 2026 aligns with its growth prospects. Bank of America Securities also stated that despite undergoing a round of valuation repair, SAP's valuation remains reasonable compared to global peers, and it expects about 25% profit growth to continue driving the stock price upward.

The so-called "German economic anomaly" phenomenon reflects more on SAP's global operations rather than its complete detachment from the gravitational pull of the German domestic economy. It more so reflects the universal appeal of SAP's AI-enhanced solutions that transcend borders.

SAP's revenue and growth drivers are global; its enterprise software, especially with the support of AI, addresses common pain points in efficiency, innovation, and data management faced by global enterprises. These demands are crucial for companies around the world and are not entirely constrained by the economic cycles of any specific country.

Although the DAX index is Germany's benchmark stock index, it also includes many multinational companies like SAP, whose fates are closely tied to global trends. The relative dullness of the German economy instead highlights the powerful energy of the AI themeLooking deeper, the extreme investment in AI by established software giants like SAP is both an offensive growth strategy and a defensive moat-building effort. Emerging, cloud-native, AI-first companies pose a potential disruptive threat to traditional giants. By deeply integrating AI (such as Joule and BDC) into its core suite and cloud products, SAP aims to lock in its vast enterprise customer base, making it more difficult for them to turn to niche AI startups.

Morgan Stanley's mention of "the suite strikes back" in its report also confirms this point—SAP is re-emphasizing the advantages of its integrated suite in the AI era, believing that deploying AI within a unified suite is far more convenient and efficient than in disparate systems.

Therefore, SAP's AI strategy is not only aimed at exploring new revenue sources but also at protecting and consolidating its existing, multi-billion-dollar business foundation, ensuring it remains undefeated in the face of AI-native challengers. The financial uplift is a joint result of successful value creation and effective defense.

The Future of Alibaba and SAP Collaboration

The collaboration between Alibaba and SAP will focus on the deep integration of technology and market in the short term.

In addition to mutual cooperation between products, both parties will work together to expand the market.

Alibaba Group CEO Eddie Wu previously stated that Alibaba Cloud is driving globalization with strategic investments, accelerating the internationalization of AI products and the overseas deployment of models, which aligns closely with the goal of expanding regional markets in collaboration with SAP.

In the long run, the significance of the collaboration between Alibaba and SAP goes far beyond immediate business synergy. It may give rise to a more diversified global AI landscape and build a strong regional AI ecosystem within it.

The cooperation aims to provide "customized, scalable, more secure, and intelligent solutions based on local business needs" for markets in China, Southeast Asia, the Middle East, and Africa.

Furthermore, this collaboration between giants may accelerate the "AI transformation" of traditional industries in emerging markets. By combining SAP's industry-specific software with Alibaba's AI technology and cloud infrastructure, both parties can offer more accessible and tailored AI solutions to businesses in these regions.

AI: The "Certainty" of Capital Markets?

AI is no longer just an ordinary cyclical hotspot in the capital markets; it represents a profound, structural transformation that is redefining investment logic and the future fate of enterprises. Even for traditional internet business giants like SAP, the potential and moat after +AI are rapidly growing.

The collaboration between Alibaba and SAP is not an isolated case; it represents a forming "new consensus." In today's increasingly complex landscape of AI technology research and deployment, collaboration is becoming crucial for sharing innovation risks.

At the same time, SAP and Alibaba demonstrate that despite challenges in the macroeconomic environment, they have still achieved counter-cyclical growth in market value, which is the best example of the certainty power of AI