SAP’s Cloud Backlog Hits a Record, but a Margin Squeeze Keeps the Rally on a Short Leash

SAP shares jump 9% on €22.9B cloud backlog beat, but margin pressure from AI acquisitions Dremio and Prior Labs leads to lowered EBIT forecast, splitting analyst views.

SAP’s stock surged more than 9 percent on Friday, its sharpest single-day gain in months, after the German software giant reported a record cloud backlog that blew past expectations. But beneath the headline number lies a tension that will define the stock’s trajectory in the months ahead: the cloud engine is firing on all cylinders, yet the cost of acquiring that growth is weighing on profitability in ways the market is still trying to price.

The cloud order backlog reached €22.9 billion in the second quarter of 2026, up 27 percent from a year earlier — or 26 percent on a currency-adjusted basis. Revenue climbed to €9.88 billion from €9.03 billion, while earnings per share rose to €1.59 from €1.50. The growth was powered by SAP’s Autonomous Enterprise and Business AI offerings, with the company now guiding for cloud revenue of €25.8 billion to €26.2 billion for the full year.

Yet alongside the strong top-line figures came a notable downgrade to the profit outlook. SAP trimmed its full-year EBIT growth forecast to a range of 13 to 17 percent, down from the previous 14 to 18 percent. The culprit: dilution from the acquisitions of Dremio and Prior Labs, two AI-focused deals that closed in July and are expected to cost the company more than €100 million in earnings this year. For fiscal 2026, SAP now expects non-IFRS operating profit of €11.8 billion to €12.2 billion.

The market’s reaction on Friday — a 9.15 percent jump to €140.80 — suggests investors are betting the cloud momentum will more than compensate for the near-term margin pain. But the stock remains 18.98 percent below its 200-day moving average of €173.78, and the gap to its 52-week high of €254.15 is a staggering 44.6 percent. The rally has done little to reverse a broader downtrend that has left the shares trading roughly 10 percent above their recent 12-month low.

Two Camps, Two Narratives

The divergence in analyst opinion reflects the uncertainty. Jefferies’ Charles Brennan reaffirmed a “Buy” rating with a €210 price target, pointing to cloud subscription momentum that he said is running ahead of expectations. Other houses have targets as high as €200, betting that the growth trajectory will accelerate from 2027 onward.

JPMorgan’s Toby Ogg struck a more cautious tone, keeping a “Neutral” rating and a €175 target. He described the margin decline in the quarter as a clear negative surprise, noting that the integration of Dremio and Prior Labs is still in its early stages. If further acquisitions follow or integration costs stretch across multiple quarters, the margin drag could become a recurring theme rather than a one-off.

UBS has also expressed caution, with a price target in the €164 range, while the broader consensus among analysts spans from that level up to €210.

Insider Buying and a Buyback Cushion

One signal that has caught the attention of some investors: CEO Christian Klein purchased SAP shares worth €325,219 immediately after the earnings release, at an average price of roughly €133.60. The move echoes a similar purchase by CFO Dominik Asam in January at €169.20 and suggests management sees value at current levels.

The company’s €10 billion share buyback program is also providing a floor. The first tranche — worth approximately €2.6 billion and covering 16.28 million shares — has already been completed, supporting earnings per share in the process.

A Major Customer Win and a Regulatory Clearance

Adding to the positive narrative, SAP secured a landmark deal with Airbus. The aerospace giant has chosen “RISE with SAP” combined with a sovereign cloud operating model, a contract that will bring more than 100,000 Airbus employees onto a unified technology platform. The win underscores SAP’s ability to land large, complex enterprise customers even as it invests heavily in AI.

Meanwhile, a regulatory overhang has lifted. The European Commission concluded its competition review of SAP’s maintenance and support policies for on-premise solutions in early July without taking further action, removing a potential source of disruption.

The Next Test

The key question for investors is whether the cloud backlog growth will translate into sustained revenue expansion without further margin erosion. The next concrete checkpoint comes with the third-quarter earnings report, which will show whether the integration of Dremio and Prior Labs is stabilizing or creating additional cost pressure.

If the cloud pipeline continues to expand at double-digit rates and the EBIT margin holds steady, the bull case gains credibility — and a move toward the 200-day moving average around €173.78 becomes plausible. But if the margin guidance slips again, Friday’s rally may well look like a dead cat bounce in hindsight. For now, SAP’s story is one of a powerful growth engine running alongside a profit squeeze that the market has yet to fully resolve.