SAP's Rally Faces a Margin Squeeze Even as Regulators Step Aside and Buybacks Roll On

SAP's cloud growth stays strong, but AI deals Dremio and Prior Labs pressure margins, splitting analyst ratings and trimming price targets.

The software giant's shares have staged a remarkable comeback from their summer lows, yet the path forward is clouded by a paradox: the core cloud business is firing on all cylinders, but the very acquisitions designed to secure its AI future are eating into near-term profitability.

At the heart of the tension lie two freshly completed deals. SAP closed its acquisition of Dremio, an open data-lakehouse platform provider, in early July, followed by the mid-July completion of the Prior Labs takeover, a developer of tabular foundation models. The company has pledged to invest more than €1 billion over the next four years to build a leading frontier AI laboratory for structured data. But the dilutive effect of both purchases on the non-IFRS operating margin is projected at more than €100 million — a cost that has analysts wrestling with how to value the stock.

A Split Verdict From the Analyst Community

The divergence in opinion is stark. DZ Bank analyst Armin Kremser reaffirmed a "Sell" rating on July 24, arguing that while cloud revenues are tracking in line with market consensus, the inorganic effects are weighing on the group's operating margin. Barclays, by contrast, maintained its "Overweight" stance but slashed its price target from €255 to €220 on July 28, citing short-term uncertainties around cost development that "could prove less predictable than expected." Both houses trimmed their earnings forecasts for the company.

The caution stems from SAP's updated annual guidance, released alongside its quarterly results. The company now expects non-IFRS operating profit of €11.8 billion to €12.2 billion for 2026 on a currency-adjusted basis, up from €10.42 billion the prior year. Cloud revenue is projected to reach €25.8 billion to €26.2 billion, representing growth of 23 to 25 percent against the €21.02 billion recorded in 2025. The growth engine remains intact — the question is how much of that momentum gets diverted to pay for the AI buildout.

Other banks have also recalibrated their targets without abandoning their bullish stances. Goldman Sachs trimmed its price objective from €230 to €215 on July 27 while keeping a "Buy" rating, with analyst Mohammed Moawalla pointing to the robust cloud subscription backlog and a strong product pipeline. Berenberg followed suit the same day, lowering its target from €215 to €205 but holding firm on its buy recommendation.

Regulatory All-Clear and a Buyback Machine in High Gear

While the margin debate plays out on the sell side, the company has quietly removed a regulatory overhang. The Bundeskartellamt, Germany's Federal Cartel Office, closed its preliminary investigations against SAP on July 30 without initiating abuse proceedings. The probe had been triggered by complaints from software firms, including Munich-based Celonis SE, which accused SAP of hindering customers and third-party providers in data usage while favoring its own process-mining software Signavio. Cartel office president Andreas Mundt stressed that companies must generally be able to use their own data in other providers' applications, and that non-discriminatory data access is crucial for competition on large software platforms. The underlying legal dispute between SAP and Celonis continues before a court in California, but the decision relieves SAP of an additional regulatory risk on home turf.

The share buyback program, meanwhile, shows no signs of slowing. Between July 27 and 31, SAP repurchased approximately 2.18 million of its own shares via Xetra for a total of around €344.3 million, at a daily weighted average price of €157.62 per share. That brings the cumulative total under the current program to 2,184,430 shares. The purchases form part of the second tranche of a buyback program announced in January, with an overall volume of up to €10 billion running through the end of 2027. This tranche, launched July 27, authorizes purchases of up to €2.6 billion until January 27, 2027. Adding to the signal, SAP disclosed a director's dealing on July 27 involving CFO Dominik Asam's purchase of company shares — a move investors often read as a vote of confidence from inside the executive suite.

A Market Running Hot

The shares have responded enthusiastically to the confluence of news. On Friday, SAP closed at €178.46, up 3.35 percent on the day, bringing the 30-day gain to 29.04 percent. The primary article, using a slightly different measurement window, puts the 30-day advance at 30.21 percent with the stock at €180.08. Either way, the rally has pushed the 14-day relative strength index to 74.8 to 75.5 — firmly in overbought territory, a condition that historically has preceded short-term pullbacks.

The broader context is supportive. SAP's cloud backlog rose 26 percent on a currency-adjusted basis to €22.9 billion, as enterprises shift critical finance, procurement, and HR systems onto platforms that serve as foundations for AI applications. Reuters has noted that SAP, along with Capgemini, Sopra Steria, and OVHcloud, is seeing stronger demand as companies move from merely experimenting with AI to deploying it at scale.

CEO Christian Klein acknowledged the pressure to accelerate, telling the Süddeutsche Zeitung that he feels the urgency to push the company's own AI products forward faster.

The next test comes on October 21, when SAP is scheduled to report third-quarter results. By then, investors will have a clearer picture of whether the margin drag from Dremio and Prior Labs is a temporary cost of transformation or a more persistent feature of the company's new AI-centric economics. For now, the bulls and bears each have their evidence — and the stock's technical position suggests the market may need to catch its breath before choosing a side.