SAP's AI Investment Spree Squeezes Margins, Undermining €10 Billion Buyback

SAP shares remain under pressure from rising cloud and AI costs, overshadowing a €10B buyback, acquisitions, and new AI assistants. Goldman cuts margin forecasts; stock down 32% YTD.

SAP shares have clawed back from a two-year low of €130.80, recently trading at €137.26 after stabilising briefly at €136.70, but the relief rally looks fragile. The software giant has showered the market with positive operational news — a far-reaching buyback, a string of acquisitions and a wave of AI-powered assistants — yet the stock still nurses a 32% year-to-date loss. The culprit: mounting costs from its cloud and artificial intelligence pivot, which are gnawing into profitability faster than expected.

Goldman Sachs has already taken a knife to its margin estimates. The bank now expects SAP’s gross margin in the second half of 2026 to come in at 72.8%, down from a prior forecast of roughly 73%. The downgrade reflects the heavy capital demands of scaling cloud infrastructure and deploying new AI services — a burden that analysts say will not ease quickly. Even so, Goldman maintains a bullish stance on the stock, though it cautions that rising hardware costs for AI could further pressure the bottom line.

The company’s massive €10 billion share repurchase scheme — launched in January and running through 2027 — has so far failed to arrest the decline. The first tranche, worth around €2.62 billion, saw SAP buy back 16.3 million shares at an average price of €161.16 a piece, well above the current market level. A second tranche of up to €2.6 billion is underway, with a deadline of July 27. While the ongoing purchases provide a technical floor, market observers question the timing, noting that the buyback is effectively absorbing stock at a premium.

Management is doubling down on inorganic growth to bolster its AI credentials. The planned acquisition of US-based Dremio, expected to close in the third quarter of 2026, will bring SQL-based data lakehouse technology built on open standards such as Apache Iceberg. The goal: to marry SAP data with vast external datasets without requiring physical copies. Alongside the earlier purchase of Prior Labs — a four-year, multi-billion-euro commitment — Dremio will feed into the "SAP Business Data Cloud", the foundation for so-called agentic AI that can autonomously steer business processes. In tandem, SAP has begun rolling out 13 specialised Joule assistants, targeting the SuccessFactors HR portfolio. New modules for recruiting, onboarding and payroll administration aim to differentiate SAP from pure infrastructure providers by embedding AI directly into workflows.

Chart technicians see some respite: the 14-day Relative Strength Index has lifted to 42.1, exiting oversold territory. Berenberg Bank holds a price target of €215, suggesting significant upside from current levels. Yet the near-term picture remains clouded. SAP is now in a quiet period ahead of its second-quarter earnings release on July 23, 2026, when management will have to convince investors that the cloud revenue ramp can ultimately restore margin health without derailing the share price further. Until then, the buyback and the steady drip of deal news may keep the stock afloat, but the margin squeeze remains the dominant narrative.