SAP's €3.5 Billion Bond Bet: Funding M&A While the Market Sours on Software Stocks

SAP stock nears 52-week low despite 27% cloud growth and €3.5B bond, as Oracle AI capex fears weigh. July 23 half-year report will test cloud margin.

SAP’s stock is trading nearly 26% below its 200-day moving average of €186.59, and with shares hovering around €140, the gap to the 52-week trough of €135.52 is barely three percentage points. Yet the company just raised €3.5 billion through a euro-denominated bond with maturities of up to seven years, earmarking the proceeds for general corporate purposes and potential acquisitions. The contrast between an aggressive capital markets move and a share price that is scraping the year's floor tells the story of a software giant caught between operational momentum and a brutal sector selloff.

The selloff began across the Atlantic. Oracle’s recent announcement that it intends to spend between $90 billion and $95 billion on data centres by fiscal 2027—well above the $68 billion analysts had penciled in—triggered a panic that spread through the enterprise software space. SAP shares shed more than 8% in the week after the Oracle news, at one point losing 4% in a single session and becoming the worst performer in the DAX. The logic was straightforward: if even a strong Oracle quarter is being crushed by AI infrastructure costs, the same pressure could weigh on any European peer making heavy cloud investments. UBS rubbed salt in the wound by downgrading the entire European IT software sector.

The irony is that SAP’s own results tell a fundamentally different story. In the first quarter, cloud revenue jumped 27% year on year, total revenue climbed to €9.6 billion, and operating profit rose 24% to €2.9 billion. The cloud order backlog swelled to €21.9 billion, a figure that Bernstein calls “absurdly low” when set against the current valuation. The investment bank reaffirmed its buy rating with a price target of €273—almost double the share price at €138.70, implying upside of about 97%.

But not everyone is convinced. JPMorgan maintained a hold rating on SAP after the Oracle shock, and Goldman Sachs recently lowered its gross margin forecast for the second half of the year to 72.8%, down from earlier estimates. The culprit is the enormous spending needed to build out generative AI capabilities. SAP is pouring capital into its own server infrastructure, mirroring the very behaviour that spooked Oracle investors. The question now is whether those costs will compress margins more than the market expects.

Some bright spots exist beyond the quarterly numbers. Germany’s Federal Office for Information Security granted SAP clearance for its cloud infrastructure in Walldorf and St. Leon-Rot to handle classified documents. That opens up a lucrative channel with government agencies and regulated industries, where no domestic competitor currently offers a comparable security level.

All eyes now turn to July 23, when SAP publishes its half-year report. Two metrics will dominate the conversation: the cloud order backlog and, more critically, the cloud gross margin. The margin will determine whether the company’s expensive AI strategy is commercially viable or whether the investment burden will keep weighing on the stock. Until then, the shares remain trapped near their lows, and the €3.5 billion bond suggests management is betting on M&A rather than a quick share price recovery.