SAP’s Cloud Engine Surprises the Skeptics — But the Second Half Looms Large

SAP shares rebound after 27% selloff as Q1 cloud revenue jumps 19% to €6B, operating margin expands, and AI monetization plans emerge.

The selloff that wiped more than a quarter off SAP’s market value since January came to an abrupt halt on Friday, as the German software giant delivered first-quarter numbers that silenced the doubters — at least for now. The shares surged more than six percent, clawing back some of the ground lost after a brutal 27 percent decline from the 52-week high of 271.60 euros.

What changed? The cloud narrative, for one. Revenue from cloud services climbed 19 percent to nearly six billion euros in the three months through March, while total sales rose six percent to 9.56 billion euros. Net profit advanced nine percent to 1.9 billion euros, and earnings per share of 1.66 euros comfortably beat the analyst consensus of 1.64 euros — and the 1.52 euros recorded a year earlier.

The operating margin told an even more compelling story. It jumped from 25.9 percent to 28.7 percent, reflecting the impact of cost-cutting measures that are beginning to show in the bottom line. Operating profit rose 17 percent under IFRS, or 24 percent on a currency-adjusted basis.

A Cloud Growth Asterisk

The cloud order backlog expanded 20 percent, suggesting demand remains robust. SAP reaffirmed its full-year guidance, targeting cloud revenue of between 25.8 billion and 26.2 billion euros — representing growth of 23 to 25 percent.

But here’s the catch. The first-quarter acceleration was helped by one-off seasonal effects that are unlikely to repeat. DZ Bank analyst Armin Kremser warns that the pace will slow markedly in the second quarter. His firm cut its fair value estimate from 150 to 130 euros and maintains a “sell” rating, arguing that even after the recent plunge, the stock is not cheap.

Bernstein Research takes the opposite view, lifting its price target to 276 euros — a level that implies substantial upside from Friday’s close of 148.74 euros. The divergence between the two houses underscores the uncertainty surrounding SAP’s growth trajectory in the second half.

AI Disruption — Or Opportunity?

The selloff that preceded earnings was driven in part by fears that artificial intelligence agents could disrupt SAP’s business model. The first-quarter results suggest the company is holding its own, with customers embracing its own AI tools rather than abandoning the platform.

SAP is preparing a strategic shift in how it charges for those tools. Starting in July, it will introduce consumption-based pricing for its AI services, moving away from the traditional subscription model. The details are expected at the Sapphire user conference beginning May 11, where management will need to convince investors that the new monetization strategy can sustain growth into the second half.

Cash Returns and Regulatory Overhang

The company is also leaning on shareholder rewards to support the stock. Through late April, SAP had repurchased roughly 16 million of its own shares, worth about 2.6 billion euros. The buyback program runs through the end of 2027 and has a maximum volume of 10 billion euros.

At the annual general meeting on May 5, shareholders will vote on a proposed dividend of 2.50 euros per share, maintaining the payout from the prior year.

Meanwhile, the planned acquisition of Reltio — a master data management specialist — is expected to close in the second or third quarter, pending regulatory approval. The deal is designed to make customer data AI-ready, a logical strategic fit.

An unresolved EU probe into SAP’s on-premise maintenance policies, launched in September 2025, continues to hang over the stock. The scope and timeline of the investigation remain unclear. For now, the market is focused on what the company can control — and the first-quarter numbers suggest it is doing plenty right.