SAP's Aggressive AI Spending Spree Fails to Convince Nervous Investors

SAP's aggressive €10bn buyback and AI acquisitions contrast with a stock near 52-week lows, as macro headwinds and sector-wide capex concerns weigh on investor sentiment.

For a company that just splashed out €3.5bn on a bond, sealed a data-acquisition deal, and launched a €10bn share buyback, SAP’s stock looks anything but confident. The German software giant closed Friday at €141.52, brushing within 4.4% of its 52-week trough — a level that wipes out nearly 46% of its value over the past twelve months. The contrast between corporate ambition and market reception could hardly be starker.

The management’s answer to the selloff has been a flurry of strategic moves. On 7 May, SAP completed the takeover of Reltio, a data-specialist aimed at cleaning up corporate information for artificial intelligence applications. Two other deals are in the pipeline: the data-lakehouse firm Dremio and the AI lab Prior Labs, into which SAP will pour more than €1bn over the next four years. To fund the offensive, the company tapped the capital market with a €3.5bn bond, comfortably placed. Both Moody’s and S&P have affirmed the creditworthiness behind the scheme.

Shareholders are not being left out. A buyback programme running through the end of 2027 can reach €10bn in total. The first tranche of €2.6bn has already been completed, returning cash to investors even as the stock languishes.

What is supposed to justify those outlays is an operational engine that remains in decent shape. SAP’s cloud backlog reached €21.9bn at the end of the first quarter, up 20% year on year. Pure cloud revenues rose 19%, and the board is targeting roughly €26bn in cloud sales for the full year. Free cash flow is forecast to hit €10bn — provided geopolitical tensions in the Middle East do not escalate further.

Yet the market has been fixated on external shocks. The trouble started when Goldman Sachs trimmed its gross margin forecast for the second half of 2026 to 72.8% from 73.3%, citing higher hardware costs. The stock dropped about 4% on that news alone. The bank kept its buy rating and €230 price target, and maintains its estimate of 23.5% organic growth in the cloud current backlog for the second quarter.

A day later, Oracle delivered a double blow. The US rival posted strong earnings but unveiled capital expenditure plans of up to $95bn for fiscal 2027 — far exceeding Wall Street’s expectations. Even though Oracle expects to offset up to $25bn via customer repayments, the sheer scale raised concerns about capital intensity across the AI race, dragging down the entire sector, including SAP. Adding to the gloom, UBS downgraded European IT stocks across the board.

Macro pressures have compounded the anxiety. Goldman now expects the US to deliver no rate cuts in 2026, pushing the first move into 2027. For richly valued growth names like SAP, higher discount rates translate directly into lower valuations. Analysts also point to structural headwinds: the cloud backlog growth may slow as the migration base matures, and many corporate clients are currently prioritising AI adoption over a rapid shift to the cloud.

The next concrete test arrives on 23 July when SAP reports quarterly results. Goldman expects a macro backdrop similar to the first quarter. Positive signals emerged from the recent SAPPHIRE user conference, where the pipeline showed improvement. The million-dollar question is whether that pipeline can turn into signed contracts, especially for the new AI platform. Without real orders that translate into bigger cloud deals, the billions spent on acquisitions will remain hard to justify in the eyes of a sceptical market.