​​SAP Shares Plunge Up To 17% On Disappointing Cloud Growth

(MENAFN- DailyFX (IG)) SAP shares plunge 14% as cloud backlog growth disappoints investors

​SAP's sharp drop marks the stock's steepest one-day decline since October 2020, when shares slid 22% following disappointing third quarter (Q3) results, and leaves SAP on course for its lowest close since May 2024.

​With a DAX 40 weighting of around 15%, SAP also dragged down Germany's main stock index which traded around half a percentage point lower on Thursday while its European peers remained in positive territory.

​SAP's dramatic decline has highlight the elevated expectations investors had placed on the company's cloud transformation. The company said its current cloud backlog rose 16% in the fourth quarter (Q4) to €21.1 billion ($25.3 billion), disappointing analysts, having previously expected an increase of around 25%.

​The substantial share price drop occurred as cloud backlog represents future contracted revenue not yet recognised, providing visibility into upcoming performance. Slower backlog growth raises questions about future revenue acceleration and competitive positioning.

​Large deals impact backlog calculations

​SAP said large, long-term transformational deals - which feature slower cloud revenue ramps and legally required termination-for-convenience clauses - reduced constant-currency cloud backlog growth by roughly one percentage point in the quarter.

​This technical explanation provided context but did not prevent the sharp share price decline.

​Chief executive Christian Klein said the latest backlog figures provide a "strong foundation" for accelerating revenue growth through 2027, but SAP cautioned that cloud backlog growth is likely to "slightly decelerate" in 2026. It is exactly this forward guidance which compounded investor concerns and provoked the selling frenzy.

​Revenue and profit growth continue

​Yet SAP reported Q4 revenue of €9.7 billion, up from €9.4 billion a year earlier, while operating profit rose to €2.6 billion from €2 billion. These absolute figures show continued growth, though investors clearly expected stronger cloud momentum.

​Although the company has been transitioning from on-premise software licences to cloud services, the surge in artificial intelligence (AI) investment has heightened investor concerns around legacy software providers and whether these large investments will translate to future profits.

​Cloud transformation challenges

​SAP's transition from traditional software licensing to cloud subscriptions represents a fundamental business model shift. The company historically sold perpetual licences for on-premise software installations, generating upfront revenue.

​Cloud subscriptions create recurring revenue streams but require upfront investment whilst recognising revenue over contract periods. This transition temporarily pressures reported revenue growth during the conversion phase.

​Customers benefit from cloud delivery through reduced infrastructure requirements, automatic updates and flexible scaling. However, migration from established on-premise systems requires significant change management.

​Competition in enterprise cloud software has intensified with both established players and cloud-native challengers pursuing market share. SAP faces competitive pressure from Oracle, Microsoft, Salesforce and others.

​AI concerns weigh on legacy software providers

​The surge in AI investment has created additional concerns for established software companies. Investors question whether traditional enterprise software architectures remain competitive against AI-native platforms.

​Legacy providers face challenges integrating AI capabilities into existing products whilst maintaining compatibility and supporting current customers. Building new AI-first offerings requires substantial investment and technical transformation.

​Newer competitors can design software from inception around AI and modern cloud architectures. This structural advantage potentially threatens market share for companies such as SAP with substantial legacy codebases and customer commitments.

​SAP has announced various AI initiatives including integrating large language models into business processes. However, execution risk remains high as the company balances innovation with serving its enormous existing customer base.

​Competitive dynamics in enterprise software

​Understanding SAP's challenges requires viewing them within the broader enterprise software landscape. The company competes across multiple categories including enterprise resource planning (ERP), customer relationship management (CRM) and supply chain management.

​Market dynamics vary by software category, with some segments experiencing rapid disruption whilst others remain relatively stable. SAP's core ERP business faces less immediate disruption than customer-facing applications.

​Switching costs for complex enterprise software create customer stickiness but also constrain growth as prospects hesitate before large implementations.

​Cloud delivery models have reduced some switching barriers by eliminating infrastructure investments. Subscription pricing also lowers initial adoption costs, potentially accelerating competitive dynamics.

​Valuation reassessment following miss

​The current 14% share price decline – following a minor recovery as US investors stepped in - represents a substantial valuation reduction reflecting downgraded growth expectations. Software companies typically trade on forward revenue multiples, making growth deceleration particularly damaging.

​Premium valuations require justification through superior growth rates or profitability. When companies miss key metrics, markets rapidly reprice shares to reflect reduced expectations.

​SAP's valuation had incorporated optimism about cloud transformation success and market share gains. Disappointing backlog growth forces investors to question these assumptions.

​Comparative valuations versus peers including Oracle, Salesforce and ServiceNow will be reassessed. If SAP trades at similar or higher multiples despite slower growth, further pressure may emerge.

​Forward guidance and investor concerns

​Management's commentary about slightly decelerating cloud backlog growth in 2026 compounds near-term concerns. Investors prefer accelerating growth narratives, making deceleration guidance particularly unwelcome.

​The timeframe to 2027 mentioned for revenue growth acceleration seems distant given current disappointment.

​Guidance credibility suffers when companies miss expectations, creating scepticism about future targets, therefore SAP must rebuild confidence through consistent execution in coming quarters.

​Technical analysis of the SAP share price

​The SAP share price seems to have found support along its 200-week simple moving average (SMA) at E167.23 and its 22 April low at E163.82.

​SAP weekly candlestick chart Source: TradingView Source: TradingView

​Given the SAP share price decline seen since June 2025, it is more likely that this support zone and this week's low at E163.30 are to give way, rather than hold.

​If so, the mid-February 2024 low at E106.44 may be reached. If also fallen through, the next downside target would be seen around the December 2023 high at E149.12.

​SAP daily candlestick chart Source: TradingView Source: TradingView

​In case of the E167.23-to-E163.30 support zone holding, the E180 region would be expected to act as resistance, followed by the 22 January low at E187.32.

​Only a currently unexpected bullish reversal and rise above the 27 January E203.00 high would negate this week's negative momentum.

​What this means for investors

​The sharp share price decline following disappointing cloud backlog growth demonstrates the risks of investing in high-valuation growth stocks. When companies miss key metrics, markets respond swiftly and severely.

​SAP's continued revenue and profit growth provide some reassurance that the underlying business remains healthy. However, investors clearly expected stronger cloud momentum given valuation levels.

​The competitive threat from AI-native software platforms represents a longer-term concern beyond quarterly results and investors must decide whether current challenges represent temporary execution issues or more fundamental competitive displacement. This assessment determines whether the decline creates opportunity or signals deeper problems.

​How to trade or invest following the decline

​Investors considering SAP following the share price decline have several options. Here's how to approach trading or investing in this enterprise software company:

​Research SAP's latest results, competitive positioning and cloud transformation progress thoroughly. Understanding enterprise software industry dynamics and AI disruption risks helps inform investment decisions. Trading for beginners provides useful background.

​Choose whether you want to trade or invest in SAP. Spread betting and CFD trading allow speculation on both rising and falling prices across international shares.

​Open an account with a broker offering access to German and European shares. SAP trades on the Frankfurt Stock Exchange and also has US-listed ADRs.

​Search for SAP shares on your chosen trading platform. Review current pricing, analyst recommendations and recent news before making decisions.

​Place your trade based on your analysis and risk tolerance. Use stop-loss orders to manage downside risk, particularly with volatile technology stocks that can experience sharp movements.

​Remember that individual technology stocks can be volatile and sensitive to quarterly results. Diversification across multiple holdings reduces concentration risk compared with holding single stocks alone.

Important to know

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