Key Stats for SAP Stock
- Pre-market Price change for SAP stock: -16%
- $SAP Share Price as of Jan. 28: $234
- 52-Week High: $296
- $SAP Stock Price Target: $328
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What Happened?
SAP (SAP) stock crashed as much as 16% in pre-market after the German software giant reported current cloud backlog growth of just 25% in the fourth quarter, significantly missing Wall Street’s expectation of 26%.
The selloff marked SAP’s worst single-day decline since October 2020, when the stock plummeted 22% following disappointing third-quarter results.
- The company’s current cloud backlog—a measure of contracted revenue expected to be recognized over the next 12 months—reached €21.1 billion ($25.3 billion), up 25% year over year.
- While this might sound strong in isolation, investors had anticipated 26% growth based on management’s October guidance. UBS analysts called the result a clear “disappointment.”
- CEO Christian Klein attributed the shortfall to two main factors. First, SAP closed a higher-than-expected number of large transformational deals in the quarter.
- While these mega-deals are great for long-term revenue, they typically have slower revenue ramps in the first year as customers migrate mission-critical ERP systems to the cloud.
Second, SAP signed more government contracts that include “termination for convenience” clauses required by law.
These deals don’t count toward the current cloud backlog due to the cancellation provisions, even though they represent real business. Klein said these two factors combined to reduce current cloud backlog growth by approximately one percentage point.
Despite beating on fourth-quarter revenue (€9.7 billion versus €9.4 billion a year earlier) and operating profit (€2.6 billion versus €2 billion), SAP stock couldn’t escape the cloud backlog miss. The company also reported full-year cloud revenue growth of 26%, hitting its annual target.
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What the Market Is Telling Us About SAP Stock
The violent selloff in SAP stock reflects growing investor anxiety about the company’s ability to sustain growth momentum amid rising competition from AI-native software tools.
While SAP insists its embedded AI strategy positions it well for the future, investors are skeptical that traditional enterprise software providers can fend off disruption.
SAP stock has been particularly vulnerable to concerns that generative AI could enable companies to build their own software rather than buy it from vendors.
CFO Dominik Asam acknowledged this risk directly, telling CNBC: “What is clear is that one of the killer applications of AI is to completely transform the way companies develop code, i.e. software. So there is the question, will the customers now not be able to do everything themselves, and that means the pie will shrink?”
The company’s defense is that it’s aggressively adopting AI internally to maintain its development advantages.
- SAP said it already automated 35% of code generation using AI tools and is targeting €2 billion in internal cost savings by the end of 2028 through AI-driven efficiencies.
- Management claims this represents a 15%-20% reduction in addressable costs.
- On the product side, SAP emphasized that more than two-thirds of its fourth-quarter cloud order entry included AI components, up more than 20 percentage points from the third quarter.
- The company also said 90% of its 50 largest deals included either AI or SAP Business Data Cloud, suggesting customers are buying into the AI vision.
- However, SAP stock fell despite the company reporting a record €77 billion total cloud backlog (including revenue expected beyond 12 months), up 30% year over year.
- This metric outpaced current cloud backlog growth by 5 percentage points, indicating SAP has secured significant future revenue—it just won’t materialize as quickly as investors hoped.
Management guided that the current cloud backlog growth will “slightly decelerate” in 2026, though Klein stressed this wouldn’t be a four-percentage-point decline like 2025 saw.
The company also forecast record free cash flow of approximately €10 billion for 2026, well above prior expectations, driven by improved profitability and operational discipline.
SAP announced a new €10 billion share buyback program to start in February, signaling confidence in the long-term business despite near-term growth concerns.
The company also lowered its mid-term effective tax rate guidance to 28%-30%, down from 28%-32%.
Looking ahead, SAP faces headwinds from shifts in deal mix toward larger customers with slower revenue ramps, longer sales cycles for sovereign cloud deals amid geopolitical tensions, and investor skepticism about AI disruption.
SAP insists its combination of business applications, proprietary data, and embedded AI agents creates unique value that generic large language models can’t replicate.
For now, SAP stock is trading at its lowest level since mid-2024 as investors digest whether the company’s AI strategy will drive growth acceleration or simply slow an inevitable decline.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
