SAP's Cloud Backlog Is Growing. So Are the Bills Behind It

Goldman Sachs lifted its SAP price target to EUR 258 from EUR 230 on 23 October, keeping a buy rating, as analyst Mohammed Moawalla pointed to the strength of the company's current cloud backlog. The upgrade landed a day after quarterly figures that showed Europe's largest software maker growing briskly — while spending even faster to do so.

The stock rose 3.6% on the day of the Goldman note, with a separate reading putting the gain at 4.0% as SAP shrugged off disappointing results from US peers Fortinet and ServiceNow. Those reports, covered by Reuters, revived fears that artificial intelligence could displace established software business models. Metzler analyst Oliver Frey said the results had rekindled that debate, while Berenberg's Nay Soe Naing called the outlooks for the closing quarter extremely disappointing.

A backlog, not a revenue line

The number at the centre of Goldman's case is SAP's current cloud backlog, which stood at EUR 24.1 billion as of the third-quarter 2026 report published on 21 October — a rise of 28%. That measure tracks contracted business not yet recognised as revenue, giving a different view of the cloud franchise than quarterly sales alone. With the sector's AI argument raging, the two figures deserve to be read side by side.

Cloud revenue itself climbed 26% in the quarter, to EUR 6.67 billion, while total revenue advanced 13% and the IFRS operating result added 18%. The company also nudged its full-year outlook higher, now expecting both cloud revenue and combined cloud and software revenue at the top end of their guided ranges.

The cost side of the ledger

Growth has not come cheap. Cloud costs rose 29% over the same three months, outpacing the 26% increase in cloud revenue and pulling the cloud gross margin down to 73.9% from 74.6% a year earlier. That squeeze does not by itself prove any AI-driven disruption, but it explains why cost discipline now matters to investors alongside demand. SAP has to deliver rising usage and new features on economically sustainable terms.

ServiceNow's quarter made the same point from the other direction: beating revenue expectations and raising full-year targets for subscription revenue and cash flow margin was not enough to win over investors, with a slight miss on adjusted profit and a softer outlook weighing on sentiment. Fortinet, for its part, posted slowing growth in service revenue despite lifting its annual guidance. Higher targets alone do not carry the day when the pace of expansion is decelerating — investors want to see the AI initiatives translate into tangible financial results.

Efficiency drive, and a bigger AI bill

SAP is not treating artificial intelligence purely as a threat. At its TechEd event on Tuesday it unveiled new AI capabilities for Joule Studio, Joule Work and the Business AI Platform, where developers can choose from more than 70 AI models. Reuters also reported a shift toward cheaper AI models in some products, a move expected to yield efficiency gains of more than EUR 2 billion over the next two years. Chief Financial Officer Dominik Asam said at the same time that overall AI spending should continue to rise.

The company also expects a slight slowdown in the growth of its cloud backlog, a reminder that the order book will face a tougher comparison ahead.

For investors, the distinction is clear enough. SAP is posting cloud growth, expanding its own AI toolkit and guiding toward the upper end of its ranges. Whether established software models can be displaced over the longer term is a separate question — and one that a single day's share price move does not answer.