SAP's Cloud Engine Keeps Humming, Even as the Profit Target Gets a Trim

SAP shares rally 13.45% as cloud revenue jumps 22%, but 2026 profit guidance trimmed due to acquisition costs. Analysts split on valuation.

Investors have spent the past week deciding which half of SAP's story deserves more weight: a cloud business firing on all cylinders, or a profit outlook that just got a little less ambitious. For now, the bulls are winning.

The Walldorf-based software group closed Friday at €159.40, up 1.65 percent on the day and a hefty 13.45 percent higher over the course of the week. That rally marks a decisive step away from the July 23 low of €127.52, a nadir reached just days before the latest earnings release. Yet even after the bounce, the stock remains a long way from its record peak of €258.60, set on July 31, 2025 — a reminder that the past twelve months have taken a heavy toll on shareholder returns.

The Numbers Behind the Rebound

Friday's second-quarter figures offered something for both camps. Revenue climbed 9.4 percent year on year to €9.9 billion, while adjusted earnings per share ticked up to €1.59 from €1.50. The cloud segment, as has been the case for several quarters now, did the heavy lifting: cloud revenue jumped 22 percent, and the cloud order backlog swelled 26 percent to €22.9 billion — a record that signals customers are locking in for the long haul.

Management held its full-year revenue guidance steady at €25.8 billion to €26.2 billion. The profit picture, however, required a downgrade. SAP now expects operating profit of €11.8 billion to €12.2 billion for 2026, shaving the previous range of €11.9 billion to €12.3 billion. The company pointed to the acquisitions of Dremio and Prior Labs as the culprit, with integration costs weighing on margins in the near term.

Analysts Split on What It All Means

The Street's reaction underscores just how contested the valuation debate has become. Berenberg trimmed its price target from €215 to €205 but kept a buy rating, while Goldman Sachs cut its target from €230 to €215, also maintaining a bullish stance. Both houses appear willing to look past the guidance reduction in favor of the cloud momentum.

Not everyone shares that view. One more cautious shop downgraded the stock to sell and slashed its target from €130 to €120, arguing the integration drag could prove stickier than management suggests. That divergence — a roughly €85 gap between the highest and lowest targets — captures the central question facing investors: are Dremio and Prior Labs a temporary margin squeeze or the beginning of a more persistent cost problem?

A Careful Stance on Europe's AI Ambitions

The earnings picture is not the only thing on SAP's mind. Brussels has launched a bidding process for up to seven so-called AI gigafactories, a flagship initiative aimed at shoring up Europe's digital sovereignty and reducing reliance on US tech giants. The public purse — combining EU funds with member state contributions — could channel up to €10 billion into the project, with the expectation of unlocking roughly €20 billion in private investment, putting the total programme north of €30 billion.

German players including Deutsche Telekom, Schwarz Digits, Ionos (alongside Hochtief), Impossible Cloud and Blue Swan have all thrown their hats in the ring. SAP, like Siemens, is conspicuously staying on the sidelines. The reticence is telling, particularly as Moody's warns that US hyperscalers such as Amazon, Meta and Alphabet are increasingly tapping debt and equity markets to finance AI spending with uncertain payoffs. SAP's caution on capital-intensive mega-projects, set against the balance-sheet strain visible across the Atlantic, offers a counterpoint to the narrative that European software firms must match American spending dollar for dollar.

Two Stories, One Ticker

For now, the market's verdict is that the cloud franchise — with its double-digit growth and swelling backlog — outweighs the near-term profit haircut. Whether that calculus holds will depend on how quickly SAP folds Dremio and Prior Labs into its operations and whether the associated costs indeed prove temporary, as management insists.

The stock thus remains a tale of two narratives running in parallel: a structurally expanding cloud business on one track, and acquisition-related margin pressure on the other. Friday's close suggests investors have chosen their side — at least for this week.