SAP’s cloud order backlog is expanding at an impressive pace, marking one of the fastest growth rates seen in quite some time. However, caution is the word as the management adopts a more conservative tone regarding operational profits. This mixed sentiment has left analysts divided in their assessments.
- SAP’s cloud order backlog has increased by 27% year-over-year.
- The company has slightly downgraded its forecast for operational profits due to two recent acquisitions.
- Analyst ratings vary widely, from “Buy” at Jefferies to “Sell” at DZ Bank.
SAP Stock Gains Momentum
The SAP stock surged by 7.9% on Monday in XETRA trading, reaching €151.28, making it the strongest performer in the DAX index. This growth extends the rally that began following the recent earnings announcement. The catalyst behind this positive movement is a cloud business that is proving to grow faster than anticipated, which contrasts with the management’s more cautious outlook for operational earnings. This very divergence is at the heart of the analysts’ opinions, ranging from clear buy recommendations to sell ratings.
Cloud Business Fuels Revenue and Profit
Europe’s largest software vendor released its second-quarter financials on Thursday after U.S. market close. The company reported a revenue increase of 9% year-over-year, totaling €9.88 billion, slightly above market expectations of €9.85 billion. Earnings per share spiked to €1.89, up from €1.45 in the same quarter last year and exceeding the consensus estimate of €1.76. Ultimately, SAP reported a net income of €2.21 billion, representing over a 25% increase from the prior year. Once again, the cloud segment showed unexpected strength, with revenue surging by 22%.
Acquisitions Impact Margins and Forecasts
However, profitability did take a hit. The adjusted operational earnings only rose by 7% to €2.74 billion, falling short of expectations. CEO Christian Klein now predicts a currency-adjusted operational profit growth of only 13% to 17% for the full year, down from the previous forecast of 14% to 18%. CFO Dominik Asam attributes this adjustment to the newly concluded acquisitions of Dremio and Prior Labs, which are expected to contribute losses in the second half of the year. Additionally, there are increased marketing costs and investments in AI models. Despite these challenges, the revenue target and anticipated free cash flow of around €10 billion remain unchanged.
Analysts Divided on SAP’s Future Direction
Given the above circumstances, analysts have reacted with mixed feelings. Jefferies reaffirmed a “Buy” rating, setting a target price of €210. Analyst Charles Brennan viewed the robust short-term cloud order backlog, which has increased by 27% to €22.9 billion year-over-year, as a clear highlight, pointing out SAP’s low valuation. Similarly, Deutsche Bank maintained its “Buy” rating.
Conversely, JPMorgan expressed a more cautious outlook. Analyst Toby Ogg mentioned a negative surprise regarding margins, emphasizing that the annual forecast now depends on acceleration in the second half of the year. The DZ Bank took the most pessimistic stance, reaffirming its sell rating and lowering the fair value of SAP shares from €130 to €120. Expert Armin Kremser highlighted operational margins burdened by inorganic effects, leading to a slight reduction in the 2026 earnings forecast. On average, analysts rate the stock’s potential at €202.
As we move into the upcoming months, the critical factor will be whether operational margins can improve in the second half, as projected. The next quarterly report will likely reveal whether the recent acquisitions are merely a temporary drag on earnings or if they will have a longer-lasting impact.
This article is for informational purposes only and does not represent investment advice. The finanzen.net GmbH disclaims any liability.
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