SAP SE (NYSE: SAP) shares surged 9.3% on July 24, 2026, after the German enterprise software company reported stronger-than-expected cloud demand and maintained its major revenue and free-cash-flow targets. Current cloud backlog increased 27% to €22.9 billion, providing evidence that customers continue committing to SAP’s enterprise platforms despite growing concerns that generative artificial intelligence could disrupt established software vendors. SAP trimmed its operating-profit outlook to reflect the near-term cost of acquiring Dremio and Prior Labs, but investors treated the reduction as strategic investment rather than deterioration in the underlying business. The next test is whether SAP can translate its expanding cloud backlog and artificial intelligence portfolio into faster revenue growth during 2027 without sacrificing margins.
Why did SAP stock jump 9% even after the company lowered its profit outlook?
SAP reported second-quarter revenue of €9.88 billion, representing reported growth of 9% and constant-currency growth of 11% from the corresponding period of 2025. The result was slightly above the pre-results analyst consensus of approximately €9.85 billion.
Cloud revenue increased 22% to €6.28 billion and rose 24% at constant currencies. Revenue from the Cloud ERP Suite advanced 25% to €5.53 billion, or 27% after adjusting for foreign-exchange movements.
The strongest market signal came from SAP’s current cloud backlog, which represents cloud revenue contractually committed for the following 12 months. Backlog reached €22.93 billion, rising 27% on a reported basis and 26% at constant currencies.
The growth rate exceeded the expectations of investors who had become increasingly concerned about slowing enterprise software spending and the possibility that artificial intelligence agents could replace parts of traditional application software. SAP’s results instead showed large organisations continuing to migrate finance, supply-chain, human-resources and procurement systems onto its cloud platforms.
SAP’s New York-listed American depositary receipts closed at $160, rising from $146.38 during the previous session. Trading volume increased to approximately 6.2 million shares, compared with roughly 3.1 million shares one week earlier.
The July 24 rally left SAP shares approximately 0.6% above their July 17 close and 4.7% higher than on June 24. However, the stock remained around 47% below its 52-week high of $299.48 and only about 10% above its 52-week low of $144.97.
The reaction therefore represented a partial recovery rather than a return to the valuation levels seen before the software-sector selloff. Investors appear to be reassessing whether the market had become too pessimistic about SAP’s ability to remain relevant in an artificial intelligence-driven enterprise environment.
What does SAP currently do and why does its cloud backlog matter to investors?
SAP provides enterprise software used to manage business-critical operations including finance, human resources, procurement, manufacturing, supply chains, sales and customer relationships. Its systems are deeply embedded inside many of the world’s largest companies, where replacing them can involve multi-year technology and organisational projects.
The company is shifting customers from traditional software licences and on-premise support agreements toward recurring cloud subscriptions. RISE with SAP targets larger enterprises undertaking broad digital transformation programmes, while GROW with SAP is designed for customers seeking faster implementation of cloud-based enterprise resource planning.
This transition changes the timing and quality of SAP’s revenue. Traditional licence sales can be large but uneven, whereas cloud subscriptions generally create more predictable recurring revenue over several years.
The shift was visible in the second-quarter results. Software licence revenue declined 32% to €131 million, while software support revenue fell 8% to €2.44 billion. Those declines were more than offset by cloud growth, lifting combined cloud and software revenue by 11% to €8.85 billion.
The backlog matters because it provides visibility before revenue is recognised. A customer may sign a multi-year cloud agreement, but SAP records the corresponding revenue over the life of the contract as services are delivered.
A €22.9 billion current cloud backlog consequently gives SAP a substantial contracted base entering the next four quarters. It reduces dependence on securing enough new business in every individual quarter simply to maintain revenue.
Backlog is not identical to cash in the bank. Contracts can contain implementation conditions, differing commencement dates and customer-specific terms. Nevertheless, the 26% constant-currency growth rate suggests that demand is expanding faster than recognised cloud revenue.
SAP expects current cloud backlog growth to decelerate slightly from the 25% constant-currency rate recorded for full-year 2025. The next important signal will be whether growth remains above 20% as the backlog becomes larger and prior-year comparisons become more demanding.
Can SAP use enterprise data to turn artificial intelligence into a growth driver?
The central strategic argument supporting SAP is that enterprise artificial intelligence requires trusted corporate data, business context and access to operational workflows. SAP already sits inside many of the systems that contain that information.
An artificial intelligence agent may be able to generate text or answer general questions without SAP. It cannot easily approve a purchase order, analyse factory inventory, calculate employee compensation or update a multinational company’s financial records without secure connections to the relevant enterprise systems.
SAP is therefore positioning its Business AI platform as an intelligence layer embedded within its existing applications. Rather than treating artificial intelligence as a separate product category, the company is integrating it into finance, supply chains, procurement, human resources and customer management.
The second-quarter customer announcements provide evidence of commercial interest. Amadeus, Booking.com, PwC, Vale and several other organisations selected SAP’s artificial intelligence and data solutions, while companies including Airbus, Eli Lilly and Company, Gilead Sciences, Hindustan Zinc, Shell and Sun Pharmaceutical Industries continued adopting the wider cloud portfolio.
The opportunity is not risk-free. Artificial intelligence could reduce the number of users required to complete certain administrative tasks, potentially affecting software pricing models traditionally linked to employees or seats.
Open-source models and competing enterprise platforms could also weaken SAP’s control over the artificial intelligence layer. Customers may prefer to connect SAP data with external models rather than purchase every new capability directly from SAP.
The investment case therefore depends on SAP demonstrating that artificial intelligence increases the value of its applications, rather than turning the underlying software into interchangeable infrastructure. Growth in artificial intelligence-related cloud orders, customer usage and average contract values would provide more persuasive evidence than product announcements alone.
How do Dremio, Prior Labs and Reltio reshape SAP’s artificial intelligence strategy?
SAP completed three important data and artificial intelligence acquisitions during 2026. Reltio provides master-data-management technology intended to unify, cleanse and organise information held across SAP and non-SAP systems.
Dremio operates an open data lakehouse platform that allows customers to analyse information across different environments without repeatedly moving or converting it. SAP believes the acquisition can strengthen Business Data Cloud and provide artificial intelligence systems with faster access to enterprise data.
Prior Labs develops tabular foundation models designed to work with structured information. This is particularly relevant to SAP because corporate finance, inventory, procurement and workforce systems contain enormous volumes of information organised in tables rather than conventional documents.
SAP has committed to investing more than €1 billion over four years to expand Prior Labs into a major research operation focused on structured business data. The investment indicates that SAP is not treating artificial intelligence as a small feature extension.
The acquisitions carry a near-term cost. SAP lowered its 2026 non-IFRS operating-profit outlook to between €11.8 billion and €12.2 billion from the previous range of €11.9 billion to €12.3 billion. Management attributed the change to more than €100 million of expected dilution from Dremio and Prior Labs.
Investors accepted that reduction because SAP maintained its cloud-revenue outlook of €25.8 billion to €26.2 billion and its cloud and software revenue forecast of €36.3 billion to €36.8 billion. The company also continues to expect approximately €10 billion of free cash flow.
The acquisitions will ultimately be judged by revenue growth rather than their strategic descriptions. SAP must integrate the technologies into products customers can deploy, sell them across its installed base and generate returns exceeding the purchase prices and continuing research expenditure.
Why do SAP’s free cash flow, balance sheet and share buybacks matter?
SAP generated €3 billion of free cash flow during the second quarter, an increase of 27% from €2.36 billion a year earlier. First-half free cash flow rose 5% to €6.25 billion, putting the company more than halfway toward its approximately €10 billion full-year target.
Operating cash flow reached €6.67 billion during the first half. Contract liabilities increased substantially as customers paid or committed funds ahead of future cloud-service delivery, supporting the company’s cash generation.
SAP ended June with €10.51 billion of cash and cash equivalents. Current and long-term financial liabilities totalled approximately €10.51 billion, leaving the company close to a neutral net cash position before considering other financial assets.
The balance sheet expanded partly because SAP issued €3.5 billion of euro-denominated bonds in May. The proceeds are being used for general corporate purposes, including financing or refinancing recent acquisitions.
SAP carries investment-grade ratings of A1 from Moody’s and A+ from S&P Global, both with stable outlooks. These ratings indicate strong access to capital, although acquisitions still need to produce adequate returns.
Share repurchases provide another source of per-share growth. SAP launched a programme authorising up to €10 billion of buybacks through December 2027 and had repurchased 16.28 million shares for approximately €2.6 billion by the end of June.
The average repurchase price was €161.16 per share. SAP’s weighted-average diluted share count declined to 1.158 billion during the second quarter from 1.175 billion a year earlier.
Buybacks reduce the number of shares participating in future earnings, but their economic value depends on the price paid. Repurchases conducted when the shares trade below a conservative estimate of intrinsic value can enhance long-term per-share returns, while purchases at inflated valuations primarily offset employee compensation and dilution.
Is SAP stock attractively valued after its post-earnings recovery?
SAP had a market capitalisation of approximately $186.8 billion at the July 24 closing price. The stock’s steep decline from its 52-week high means the valuation is materially lower than it was when investors assigned a much larger premium to enterprise software companies.
Published market estimates place SAP at roughly 17 to 20 times projected earnings, depending on the measurement period, exchange-rate assumptions and whether IFRS or adjusted earnings are used. That valuation is not exceptionally low, but it appears less demanding for a company growing cloud revenue above 20%.
The free-cash-flow comparison is similarly instructive. SAP’s €10 billion target would equal approximately $11.3 billion using the exchange-rate assumption contained in its outlook. Against the current equity market value, that implies a price-to-free-cash-flow multiple of roughly 16.5 times and a free-cash-flow yield near 6%.
This calculation does not account for every acquisition payment, financing movement or future restructuring cost. It nevertheless illustrates why investors responded positively even as SAP reduced operating-profit guidance.
The stock is being valued less like a high-growth software disruptor and more like a mature enterprise platform attempting to compound recurring revenue, cash flow and earnings through cloud migration. That can support attractive returns if growth remains durable, but the valuation would become less compelling if cloud backlog slows materially.
SAP’s foreign-exchange exposure also complicates the American depositary receipt valuation. The company reports in euros, while the New York-listed shares trade in United States dollars. Currency movements can therefore amplify or reduce the impact of underlying operating performance for United States investors.
What evidence could strengthen or weaken the SAP investment case from here?
The strongest near-term proof point will be continued current cloud backlog growth above recognised cloud revenue growth. That relationship would indicate that future contracted demand is still expanding faster than the existing business.
The second test is operating leverage. SAP expects total revenue growth to accelerate in 2027 while operating expenses grow at only 80% to 90% of the revenue growth rate. Delivering that outcome would allow profit to increase faster than sales.
The third test concerns the newly acquired artificial intelligence platforms. Dremio, Reltio and Prior Labs need to contribute customer wins, product adoption and incremental revenue rather than remaining expensive pieces in an attractive strategy diagram.
SAP’s transition away from traditional support revenue is another important tension. Management expects the decline in software support revenue to accelerate as customers move to the cloud. Cloud growth must therefore remain strong enough to offset the shrinking legacy base.
Foreign-exchange movements could also reduce reported results even when constant-currency performance is healthy. SAP estimated that prevailing rates could reduce full-year reported cloud-revenue growth by approximately 1.5 percentage points and non-IFRS operating-profit growth by about two percentage points.
The company’s outlook additionally assumes a near-term easing of the Middle East conflict. A prolonged escalation could affect customer spending, economic conditions, currencies and SAP’s regional operations.
The investment case would strengthen if SAP sustains backlog growth, delivers approximately €10 billion of free cash flow, expands operating margins in 2027 and proves that artificial intelligence increases customer dependence on its platforms. It would weaken if cloud commitments decelerate sharply, acquisition costs persist without measurable commercial returns or artificial intelligence competitors reduce SAP’s pricing power.
What are the key takeaways for investors tracking SAP stock after its Q2 rally?
- SAP shares gained 9.3% after second-quarter cloud backlog and revenue exceeded market expectations.
- Current cloud backlog increased 27% to €22.9 billion, providing strong visibility into revenue expected over the next 12 months.
- Cloud revenue rose 22% to €6.28 billion, while Cloud ERP Suite revenue increased 25%.
- SAP lowered operating-profit guidance by €100 million to reflect the cost of its Dremio and Prior Labs acquisitions, but maintained its major revenue and free-cash-flow targets.
- Second-quarter free cash flow increased 27% to €3 billion, while full-year guidance remains approximately €10 billion.
- SAP had nearly equal cash and financial liabilities at the end of June and retained investment-grade credit ratings.
- The next proof points are sustained cloud backlog growth, successful artificial intelligence integration, stronger 2027 operating leverage and continued per-share growth.
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