SAP Tightens Its Belt While Bulking Up on AI as Analysts Diverge Ahead of Q2 Results

SAP closes €1B+ Prior Labs and Dremio deals while freezing hiring and travel. Stock down 48% from high, analysts split on AI monetization.

SAP has entered a period of stark contrasts. The software giant just closed a €1 billion-plus acquisition of AI startup Prior Labs and snapped up data platform provider Dremio earlier this month, yet simultaneously imposed a strict cost-discipline program that freezes non-essential travel and tightens hiring. The tension between spending big on artificial intelligence and squeezing operational margins has created a fault line among analysts just days before the company releases second-quarter earnings on July 23.

The stock closed Friday at €138.50, down 1.81%, leaving it 47.88% below its 52-week high of €265.75 set in July 2025 and just 5.89% above the recent low of €130.80. The shares have shed 33.53% since the start of the year. Technical analysts see further downside risk, with a possible slide into the €112-to-€138 band in the coming weeks — though they acknowledge that the Q2 report could either stabilise the stock or confirm the downtrend.

Analyst targets spread from €164 to €276

The analyst community is unusually polarised. UBS cut its price target from €205 to €164 on July 15, maintaining a “Buy” rating but arguing that monetisation of SAP’s new AI agent strategy is progressing more slowly than expected in complex ERP environments. JPMorgan kept its “Neutral” stance and a €175 target. By contrast, Bernstein reaffirmed its “Buy” with a €276 target on July 16, and Morningstar held its fair value estimate at €265 with a five-star rating — though analyst Rob Hales flagged macroeconomic risks from the Iran conflict and rising energy costs that could pressure IT budgets. The median of 20 buy-rated analysts stands at €202.

The divergence reflects a fundamental debate: can SAP translate its AI investments — including the Prior Labs deal for tabular foundation models and the Dremio acquisition to strengthen data architecture for agentic AI — into near-term revenue growth? CEO Christian Klein has dismissed fears that AI will displace traditional enterprise software, instead betting on an AI agent platform that runs in both cloud and on-premise environments. Prior Labs will operate as an independent unit, and the deal’s consideration exceeded €1 billion, with over $500 million in cash spread over four years.

EU probe ends, buyback runs alongside deal costs

On the regulatory front, the European Commission closed its antitrust investigation into SAP’s maintenance and support policies without imposing a fine. SAP committed to 10-year conditions, including scrapping reactivation fees for on-premise customers — a move welcomed by the German-speaking SAP user group DSAG for giving clients more flexibility. The settlement removes a legal overhang that had been in place since September 2025.

Meanwhile, a share buyback programme of up to €2.6 billion runs until July 27, returning capital to shareholders even as the company finances its acquisition spree. On the cost side, management imposed a restrictive hiring policy and banned non-essential business travel effective July 1, aiming to stabilise the operating margin during the AI transition. SAP also patched 16 security vulnerabilities on July 14, three of them critical, in products including NetWeaver, Commerce Cloud and AppRouter.

Cloud growth of 22% is the key metric

All eyes are now on the July 23 earnings release, due after market close at 22:05 MESZ, with the analyst conference at 23:00. Consensus expects cloud revenue to grow 22%. That would compare with a 27% cloud expansion in the first quarter of 2026, when total revenue rose 12% on a currency-adjusted basis and operating profit (EBIT) climbed 24% on a margin above 30%. A miss on the cloud number would embolden the bears; a beat could revive the bullish cases from Bernstein and Morningstar. For now, the stock sits 4.3% below its 50-day moving average of €144.72, and the outcome of next week’s report will determine whether the recent consolidation is a pause before a rebound — or a prelude to further declines.