SAP’s Profit Surprise Masks a Steeper Challenge Ahead

The mood around SAP shifted abruptly on Friday as first-quarter results landed well ahead of expectations, sending shares sharply higher. But beneath the relief rally, the software giant faces a more complicated picture — one where operational strength coexists with a punishing year-to-date selloff and guarded signals from management about the quarters ahead.

SAP’s stock jumped 5.38% in XETRA trading to close at €147.64, snapping a prolonged run of weakness that has left the shares down nearly 27% since the start of 2026. The bounce provided some respite, though the stock remains well below both its 50-day moving average near €158 and its 200-day line — a reminder that the technical damage is far from repaired.

Margins Hit a Milestone

What ignited the buying was a sharp improvement in profitability. SAP’s adjusted operating profit rose 24% on a currency-adjusted basis to €2.87 billion, comfortably beating consensus. The operating margin expanded to exactly 30%, up from 27.2% a year earlier — a leap that CEO Christian Klein attributed largely to efficiency gains from embedding artificial intelligence across the business.

The cloud segment, the company’s primary growth engine, continued to deliver. Cloud revenue climbed 30% currency-adjusted to roughly €5.96 billion, with the core Cloud ERP suite leading the charge. The twelve-month cloud backlog also posted a healthy increase, signaling sustained demand from enterprise customers.

A Summer Slowdown on the Horizon

Yet the euphoria was tempered by a note of caution from the finance team. CFO Dominik Asam flagged that cloud growth is expected to moderate in the second quarter, with the full commercial impact of new AI-powered products not showing up in the financials until 2027. SAP is not building its own large language models; instead, it is deepening integrations with partners including Microsoft, Mistral, and most recently Google’s Gemini Enterprise. The company expects this approach to generate roughly €2 billion in internal efficiency gains by 2028.

Should investors sell immediately? Or is it worth buying SAP?

The quarterly results also carried a one-off drag. A legal settlement with US-based Teradata cost SAP more than €400 million, weighing on free cash flow. Analysts largely brushed aside the charge, viewing it as a non-recurring item that does not alter the underlying trajectory.

Analyst Divergence Widens

The earnings triggered a split on the Street. Goldman Sachs and Jefferies reiterated bullish stances, with price targets well above €200. UBS also maintained its buy recommendation. But the DZ Bank struck a more cautious tone, downgrading the stock to “Sell” and cutting its fair value estimate to €130. Analyst Armin Kremser argued that even after the recent pullback, the valuation does not yet represent a bargain, and he expects cloud momentum to decelerate in the coming months.

Full-Year Targets Stay Firm

Management held steady on its 2026 outlook. SAP continues to target cloud revenue of up to €26.2 billion for the full year, with adjusted operating profit of at least €11.9 billion. Free cash flow is projected at roughly €10 billion.

Investors will get their next strategic update in May at the SAP Sapphire conference, where the company is expected to detail its roadmap for AI-infused applications. The next hard numbers arrive on July 23 with the second-quarter report — a date that now carries extra weight given the warning of a temporary growth dip.

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SAP Stock: New Analysis - 25 April

Fresh SAP information released. What's the impact for investors? Our latest independent report examines recent figures and market trends.

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SAP Stock: New Analysis - 25 April

Fresh SAP information released. What's the impact for investors? Our latest independent report examines recent figures and market trends.

Read our updated SAP analysis...