SAP Caught in a Paradox: AI Hardware Boom Squeezes Software Budgets, Security Gaps Add Pressure

SAP shares fall over 32% YTD as AI hardware spending pressures legacy software vendors, compounded by critical security flaws and analyst downgrades.

The logic sounds twisted, but it is playing out in real time across the technology sector. Companies are pouring billions into graphics processors, servers, and storage to build out artificial-intelligence infrastructure — and the bill is coming due for legacy software vendors. SAP, the German enterprise-software giant, finds itself on the wrong side of that reallocation of corporate IT budgets, with its shares sliding more than 32% since the start of the year.

The stock closed Tuesday at €135.92, trimming its advance from a 52-week low of €130.80 hit on 25 June. The distance to the year’s peak of €265.75 underscores the scale of the retreat: the equity has shed almost half its value over the past twelve months. Market capitalisation stands at €164.32 billion.

The immediate spark came from across the Atlantic. IBM released preliminary second-quarter figures that sent its own shares into a tailspin — a single-day plunge of roughly 25%, one of the steepest single-session routs in Big Blue’s history. Chief Executive Arvind Krishna blamed what he termed an “AI-driven chipflation” and component shortages. Enterprises, he explained, are channelling cash into hardware: servers, memory, raw computing power to brace for the AI era. The knock-on effect for software vendors like SAP is that budgets are being trimmed elsewhere.

That dynamic is making life harder for Walldorf’s flagship company at a moment when it is itself pouring money into cloud transformation and proprietary AI agents. The market is pricing in the new reality with little mercy. The stock now trades 6.45% below its 50-day moving average and 23.53% below the 200-day line, while annualised volatility sits at 36.64%. The relative strength index of 42.9 points to a neutral but downward-leaning posture — no clear oversold signal yet.

Adding to the headwinds, SAP used its July patch day on 14 July to fix 16 security vulnerabilities, three of them rated critical. The most serious flaw resides in the NetWeaver Application Server ABAP, the backbone of countless corporate installations, where a memory issue caused by a faulty out-of-bounds write function could be exploited. Another critical hole, tracked as CVE-2026-27690, affects the AppRouter middleware — an HTTP request-smuggling bug that can be triggered remotely without authentication in versions prior to 20.10. A third, CVE-2026-44761, strikes the Commerce Cloud (versions HY_COM 2205, COM_CLOUD 2211, and 2211-JDK21) with a CVSS score of 9.1 due to unsafe default credentials. SAP has not detected active exploitation, but the US cybersecurity agency CISA has already logged 14 SAP vulnerabilities in its catalogue of known exploited flaws since November 2021. Security experts are urging clients to apply the patches promptly.

Analysts have begun adjusting their expectations. UBS cut its price target on SAP from €205 to €164, while maintaining a “Buy” rating. The reasoning: adoption of the company’s new AI agents is proceeding more slowly than forecast. The move suggests that analysts are recalibrating growth and margin assumptions for a softer environment.

Not every signal is bleak. Samsung Electro-Mechanics completed its S/4HANA migration in just seven months, slashing system downtime in the process. The case demonstrates that fast, clean cloud transitions are achievable, offering a counterweight to the narrative that SAP projects are inherently slow.

All eyes now turn to 23 July, when SAP reports its second-quarter numbers. Investors will scrutinise two metrics above all: the cloud order backlog and operating margin. Can the company sustain growth without letting profitability slip? If SAP confirms its cloud targets, the mood could shift. If it disappoints, the pressure on a stock already trading near multi-year lows will only intensify.