SAP's Operating Engine Humms, But the Market Only Hears AI Cost Fears

SAP's stock hits near 2-year low despite strong Q1 earnings and €22B cloud backlog, as Oracle's $95B AI investment sparks sector-wide margin fears and macro headwinds weigh.

The disconnect between SAP's financial performance and its stock price has rarely been wider. While the German software giant posted a 24% jump in operating profit during the first quarter and its cloud backlog swelled to nearly €22 billion, its shares have been plumbing depths not seen in more than two years. On Thursday, the stock fell to €135.26, inching dangerously close to the 52-week low of €134.38. Year-to-date, the loss amounts to roughly 33%.

The immediate trigger for the latest leg down came from across the Atlantic. Oracle, a key competitor, unveiled plans to spend up to $95 billion on AI infrastructure for its fiscal 2027. Analysts had penciled in about $68 billion. The market read the mammoth commitment as a red flag for the entire software sector, sparking fears that ballooning capital outlays will erode margins. That worry has now squarely hit SAP.

Broader macroeconomic headwinds have added to the pressure. The Federal Reserve has kept its benchmark rate at a maximum of 3.75%, and several policymakers have signaled further increases in 2026 as inflation holds stubbornly at 4.2%. At the same time, investors have watched liquidity drain from technology stocks, with blockbuster initial public offerings like SpaceX’s absorbing capital that might otherwise have flowed into legacy software names.

Despite the sell-off, the underlying business tells a different story. Operating profit rose 24% to €2.9 billion in the first quarter, and the cloud order backlog reached nearly €22 billion. Some analysts argue the market is overlooking SAP’s fundamental momentum. Bernstein reaffirmed its buy rating with a €273 price target, while JPMorgan stood pat at “hold.”

Management has taken steps to position for future growth. In May, the company placed a seven-year euro bond worth €3.5 billion, earmarking the proceeds for general corporate purposes and potential acquisitions. Separately, SAP participated in a $60 million funding round for London-based startup Conduct. The firm’s software automates code analysis for clients migrating from the legacy SAP ECC system, whose mainstream support ends in early 2027. Roughly half of SAP’s global customers still use the older platform.

The shift toward digital sales is also reshaping the business. According to industry data, 67% of B2B buyers now prefer fully digital purchasing processes that avoid direct contact with sales representatives. SAP’s own store now hosts over 3,600 solutions, and companies buying through such platforms can save as much as 20% on conventional costs.

From a technical standpoint, the stock remains in deeply oversold territory, with its relative strength index well below 30. The 200-day moving average sits far above the current price, suggesting the trend is firmly bearish for now.

Investors will get a fresh look at the numbers on July 23, when SAP reports half-year results. The focus will center on the cloud gross margin, a key metric that must demonstrate that heavy investments in AI are translating into profitable revenue. For the full year, analysts currently anticipate earnings of €7.22 per share. Should the margin data reassure the market, it could finally stem the slide. But the burden of proof now lies squarely with the numbers.