SAP Stock's Balancing Act: Buyback and EU Deal Provide Floor as Margin Pressures Mount

SAP stock climbs 4% after 47% decline, buoyed by €10B buyback and potential EU settlement. Analysts see 60% upside despite AI spending headwinds.

SAP shares snapped a brutal 12-month losing streak on Friday, climbing nearly 4% to close at €136.16. The bounce, though modest against a cumulative 47% decline, signals that two structural supports are beginning to register with investors: a €10 billion share repurchase program and a potential settlement with EU antitrust regulators.

The buyback programme is running well below its average execution price. SAP bought back roughly 16.3 million shares in the first tranche at an average cost of €161.16 – nearly €25 above the current level. With the ongoing tranche authorising purchases of up to €2.6 billion through July 2026, and the total programme running until end-2027, the discounted price makes every buyback more effective in reducing the share count. That built-in bid is providing a psychological floor.

Equally important is the progress in Brussels. The European Commission has been investigating since September 2025 whether SAP locks customers into its maintenance and support ecosystem. SAP has now offered concessions aimed at improving interoperability and transparency around re?entry fees for support contracts. If the Commission accepts the commitments, the probe will close without the fine – which could have reached 10% of annual turnover – that some analysts had priced into the stock. The Commission has already opened a feedback procedure, and SAP itself says it does not expect a material financial impact.

Yet the fundamental headwinds that drove the selloff remain very much in play. Oracle’s plan to spend up to $95 billion on capital expenditure in fiscal 2027 sent shockwaves through the software sector, reigniting fears that the AI arms race will crush margins at legacy enterprise players. Goldman Sachs promptly trimmed its second?half gross margin forecast for SAP, pointing to higher hardware costs and the drag from acquisitions of Dremio and Prior Labs. The investment bank kept its buy rating intact, but the revision underscored how the market is punishing companies seen as AI infrastructure spenders rather than direct AI beneficiaries.

The cloud transition, meanwhile, continues to churn out respectable numbers. First?quarter current cloud backlog rose 20% to €21.9 billion, and cloud revenue grew 27% on a currency?adjusted basis. Management has maintained its full?year cloud revenue guidance of €25.8 billion to €26.2 billion and still sees operating profit reaching €12 billion. Free cash flow is pegged at around €10 billion. The problem is optics: investors currently reward companies that can demonstrate an immediate AI payoff, and SAP’s long?cycle migration story does not fit that template.

Analysts remain conspicuously bullish on a recovery. The average price target from nine recent notes stands at €221.25, implying roughly 60% upside. Bernstein leads the pack with a €276 target, while Berenberg (€215), UBS (€205) and Deutsche Bank (€200) all see substantial room to run. Berenberg highlights that first?quarter earnings improved sharply even as market sentiment stayed depressed, creating what they see as a valuation disconnect.

The next major catalyst arrives on July 23, when SAP reports second?quarter earnings. That report will be the first clean read on how hardware costs and the Dremio/Prior Labs integration are affecting margins, since the first quarter benefitted from a one?off effect that inflated cloud growth. The market will focus on cloud backlog and cloud gross margin – the two metrics that ultimately determine whether SAP’s AI?driven strategy is generating commercial returns or simply adding cost for now.