SAP SE (SAP)

Investment Review After Q2 FY2026 Earnings (2026.07.23)

TL;DR

SAP is the world’s largest enterprise-software company — its cloud ERP runs the operations behind most of global commerce, now pivoting that base to agentic AI. Q2 was mixed: current cloud backlog re-accelerated to €22.9B (+26% CC, a welcome trend reversal) and cloud revenue grew +24% CC, but non-IFRS operating profit rose just +9% CC and the FY profit outlook was trimmed €0.1B for M&A dilution. The AI cycle — Autonomous Enterprise, Joule Work for 350M users, Business Data Cloud — is the growth vector, in >90% of the 50 largest deals. The risk: a profit stumble that paused the beat-and-raise cadence, M&A J-curves, and ~18x on decelerating profit.

Summary

Finding	Assessment
5-Year Stock Return	$122→$146. TTM OP roughly doubled (~€5.5B→€10,440M). P/E(ttm) compressed ~35x→~18x. Stock well off its 2025 high.
Business Model	World’s largest enterprise software. #1 ERP, 87% of global commerce. Cloud ERP Suite +27% CC. CCB €22.9B (+26% CC).
Competitive Moat	AI THREAT AI-native tools eroding greenfield — Claude Code builds "good enough" ERP. But installed base deep (87% of commerce), 50yr domain knowledge, AI needs trusted data.
Past 5-YR Drivers	Cloud ERP migration (40% initiated, 60% remaining), internal AI €2B efficiency target, best-of-suite winning vs best-of-breed (+15pp vs market).
Recent Stock Move	$171→$146. SaaS-apocalypse narrative, Middle East macro, and a Q2 profit trim. Business still growing (cloud +24% CC, non-IFRS OM ~28%).
Revenue Trend	STABLE Rev YoY: 9% (Q2 2026) → 10% (Q3 2026E).
Margin Trend	STABLE Non-IFRS OM: 27.0% (Q2 2026) → 27.2% (Q3 2026E).
TTM OP Trajectory	STABLE TTM OP QoQ: 1.5% (Q2 2026) → 2.5% (Q3 2026E). TTM OP €10,440M.
Key Opportunities	Cloud ERP Suite +27% CC. Autonomous Enterprise, Joule Work, Business Data Cloud. RISE/GROW migration wave. >€2B internal AI efficiency by 2028.
Key Risks	Q2 profit growth decelerated to +9% CC; FY profit outlook trimmed on M&A dilution. Middle East macro overhang. Software licenses −32%; AI token-cost pressure.
Catalysts	Joule Work + ~50 assistants (Q3), 400+ agents by year-end. CCB conversion in H2. €10B buyback (~€2.6B done). Revenue acceleration expected 2027.
P/E(ttm) Valuation	~18x (5-yr range ~13x–43x). Near the low end. Cheap vs peers (CRM, NOW, WDAY richer). Re-rates on AI monetization; capped by decelerating profit.

Q2 FY2026 Key Data (Apr–Jun 2026), reported 2026.07.23

Current cloud backlog €22.9B (+26% CC) — re-accelerated, a welcome reversal after two lagging quarters. Cloud revenue €6.3B (+24% CC); Cloud ERP Suite +27% CC, now 88% of cloud.
Total revenue €9.9B (+11% CC). Non-IFRS OP €2.7B (+9% CC, +7% reported); IFRS OP €2.6B (+8%). FCF robust at €3.0B. Non-IFRS EPS €1.59 (+6%); IFRS EPS €1.89 (+30%).
Guidance: top-line and FCF outlook maintained, but FY non-IFRS OP outlook cut €0.1B to €11.8–12.2B (CC) for Dremio/Prior Labs dilution — pausing the beat-and-raise streak.

Key Takeaways from Earnings Call

CCB reaccelerated — the key forward indicator turned. After two quarters where backlog lagged cloud revenue, CCB grew +26% CC (Reltio <1ppt), a flip management called a “welcome trend reversal.” The AI product cycle is the story: Sapphire launched the Autonomous Enterprise, Joule Work (one AI entry for 350M users), the AI Agent Hub, and Business Data Cloud. AI/BDC sat in >90% of the 50 largest deals.
A rare profit stumble broke the beat-and-raise cadence. Non-IFRS OP grew only +9% CC (vs +24% in Q1) on slower revenue, a low Q1 stock-comp base, accelerated R&D, launch marketing, and Reltio dilution. SAP then cut the FY non-IFRS OP outlook €0.1B (to €11.8–12.2B CC) for Dremio/Prior Labs — an analyst flagged the paused streak. Asam: don’t extrapolate “one single quarter.”
Migration and AI deals reinforce each other. The new RISE / GROW with SAP offering pairs an AI ERP-migration toolchain (up to 30% lower cost) with a commitment to activate AI agents in year one. RISE wins: Shell, Morgan Stanley, Eli Lilly, Electrolux, Vonovia; AI: PwC (a 35-min task cut to 5 min), Booking.com. CEO Klein: customers must modernize the ERP and adopt AI together — on poor data “AI is going nowhere.”
Watch the IFRS/non-IFRS split and the macro overhang. IFRS EPS jumped +30% to €1.89 (aided by tax-exempt income) while non-IFRS EPS rose only +6% to €1.59 — non-IFRS is SAP’s primary basis. Non-IFRS cloud gross margin slipped to 74.6% (−0.7ppt CC) on platform/sovereignty build-out. CFO Asam cited the Middle East conflict weighing on decisions, and guided CCB growth to slow slightly exiting the year.

Key Segments and Revenue Mix (Q2 FY2026)

Segment	Q2 2026 Revenue	% of Total	Key Details
Cloud	€6,281M	64%	+24% CC. Cloud ERP Suite €5,525M (+27% CC), now 88% of cloud revenue. Extension Suite €692M (+12% CC). IaaS €65M (−22% CC). SaaS/PaaS €6,216M (+25% CC). Non-IFRS cloud GM 74.6% (−0.7ppt CC).
Software Licenses & Support	€2,570M	26%	−7% CC. Licenses €131M (−32%). Support €2,439M (−7% CC). Declining as customers migrate to cloud; ECC maintenance winds down toward 2030.
Services	€1,027M	10%	−2% CC. Slight decline as consultants are reallocated to build AI agents and drive adoption; >3,000 in the Consulting AI Factory.

All CC = constant currency (non-IFRS). EUR reporting. Stock trades in USD on NYSE. Key competitors: Oracle, Microsoft Dynamics, Workday, Salesforce. Major customers: 87% of global commerce runs on SAP. Q2 RISE with SAP wins: Shell, Morgan Stanley, Eli Lilly, Electrolux, Samsonite, Vonovia. €10B share repurchase program (2026-2027); ~€2.6B repurchased through June 2026.

Business Model

PLATFORM

Hyperscalers (AWS, Azure, GCP)
LLM providers (OpenAI, Claude, etc.)
SI partners (Accenture, Deloitte, EY)
ISV ecosystem (thousands of apps)

Technology / Partners →

SAP

S/4HANA Cloud ERP
Business Data Cloud (BDC)
Business AI & Joule
SuccessFactors, Ariba, Concur
87% of global commerce, €22.9B CCB

ERP / Cloud → € Revenue

CUSTOMERS

Manufacturing & industrial
Financial services
Energy & utilities
Consumer products & retail
Public sector & healthcare

Moat Assessment: AI Threat

AI eroding greenfield moat: Companies using Claude Code are building “good enough” ERP alternatives for accounting, logistics, and workflows. For new deployments, AI-native tools bypass multi-year, multi-million-dollar SAP implementations entirely. Net-new customer acquisition faces increasing competition from low-cost AI alternatives.
Installed base lock-in remains deep: 87% of global commerce runs on SAP. Replacing SAP is a multi-year, multi-hundred-million-dollar project. Extended maintenance ending 2030 creates structural migration catalyst to SAP’s own cloud, not competitors.
50 years of domain knowledge may be the real AI moat: 7.3M data fields, 120+ business processes. AI agents need trusted, governed data for mission-critical processes. CEO: “I don’t believe there’s any other software company who can sort that out.”

Stock vs. Earnings — 5-Year Performance

Stock currently at $146 up ~34% from $122 (5 years ago). The stock peaked at $244 in late 2025 before declining 33% on “SaaS apocalypse” fears and Middle East uncertainty. SAP’s cloud transformation from on-premise licensing to subscription cloud is the biggest enterprise software migration in history.
TTM OP grew from ~€5.5B to €10,440M (+90%). Driven by the cloud transition (Q2 cloud revenue +24% CC), margin gains from cloud mix shift, and €2B+ in internal AI-driven productivity savings. Non-IFRS OM expanded from ~27% to ~28% (27.8% in Q2).
P/E(ttm) at 18x is below the 5-year average of ~28x, reflecting the share price decline. For a low-double-digit revenue grower with €10B+ FCF and 87% of the world’s transaction revenue running on SAP, ~18x is attractive relative to enterprise software peers at 30-50x.

Past 5-Year Key Drivers

Cloud transformation: Cloud ERP Suite +27% CC, now 88% of cloud revenue. SAP is migrating the world’s largest installed base of enterprise software from on-premise to cloud. Extended maintenance on legacy ECC ends 2030, creating a structural migration deadline. RISE with SAP simplifies the transition. Public cloud >70% of order entry.
Margin expansion from cloud mix shift + internal AI productivity: Non-IFRS OM expanded from ~27% to ~28% (27.8% in Q2). Non-IFRS cloud GM ~74.6%. Internal AI driving €2B efficiency target by 2028 (30% developer productivity, 12% support productivity, 83K hours saved in go-to-market). Total OpEx expected to grow at 80-90% of revenue growth.
Business AI + Data Cloud expanding TAM: SAP’s ERP is the “institutional brain” of enterprises — 50 years of process and industry knowledge encoded in 7.3M data fields. Business Data Cloud enables AI agents to access governed data across SAP and non-SAP systems. Recent tuck-ins strengthen the data/ontology layer: Reltio (master data governance), Dremio (Apache Iceberg lakehouse), and Prior Labs (tabular-prediction AI).

Quarterly Key Metrics

	Q2 2024	Q3 2024	Q4 2024	Q1 2025	Q2 2025	Q3 2025	Q4 2025	Q1 2026	Q2 2026	Q3 2026E
Quarter End	Jun 2024	Sep 2024	Dec 2024	Mar 2025	Jun 2025	Sep 2025	Dec 2025	Mar 2026	Jun 2026	Sep 2026
Stock Price	$199	$229	$246	$268	$304	$267	$243	$171	$154	$146
Stock QoQ	+2%	+15%	+7%	+9%	+13%	-12%	-9%	-30%	-10%	-5%
Rev YoY	10%	9%	11%	12%	9%	7%	3%	6%	9%	10%
OM%	30%	25%	30%	26%	28%	27%	27%	28%	27%	27%
R40 (Rev YoY + OM%)	40%	35%	40%	38%	37%	34%	30%	34%	36%	38%
TTM OP ($M)	$9,749	$10,246	$11,122	$9,766	$9,787	$10,100	$9,932	$10,290	$10,440	$10,697
TTM OP QoQ	+13%	+5%	+9%	-12%	+0%	+3%	-2%	+4%	+1%	+2%
FCF/OP ttm	69%	68%	40%	55%	65%	64%	85%	79%	84%	92%
Debt/EBITDA	0.7x	0.8x	0.8x	0.8x	0.7x	0.7x	0.6x	0.6x	0.8x	0.8x
P/E ttm	22x	24x	26x	36x	43x	35x	33x	23x	19x	18x

Recent Stock Performance & Drivers

Stock at ~$146, down from ~$171 in Q1 and well off its 2025 high. The de-rating reflects the “SaaS apocalypse” narrative (fear that AI disrupts seat-based software), Middle East uncertainty, and — this quarter — a rare non-IFRS profit miss (+9% CC) plus a €0.1B cut to the FY profit outlook that paused the beat-and-raise streak.
TTM OP growing steadily to €10,440M with non-IFRS operating margin around 28%. FCF at €10B+ annualized (€3.0B in Q2) funds strong cash returns; ~€2.6B of the €10B buyback is done. Fundamentals are still improving, though profit growth decelerated in Q2.
P/E(ttm) at 18x is near the bottom of its 5-year range. For a company with 87% of global commerce, +24% CC cloud growth, and a large AI product cycle, ~18x looks reasonable if AI monetization builds — but the trimmed profit guide caps near-term re-rating.

Opportunities

Cloud ERP + migration wave. Cloud ERP Suite +27% CC is the fastest-growing $20B+ cloud franchise; CCB €22.9B (+26% CC) gives multi-year visibility. RISE / GROW with SAP cuts migration cost up to 30%; ECC maintenance ends 2030.
Agentic AI is the new TAM. Autonomous Enterprise, Joule Work (350M users), the AI Agent Hub, and Business Data Cloud (Dremio + Reltio + Prior Labs) target outcome-based pricing atop subscriptions. AI/BDC in >90% of top-50 deals.
Self-funding productivity. Internal AI is driving ~30% developer productivity and a >€2B efficiency run-rate by 2028, with model-routing to avoid costly frontier LLMs — supporting the 80–90% expense framework.

Challenges

Profit decelerated, margins slipped. Non-IFRS OP grew just +9% CC (vs +24% in Q1) and the FY profit outlook was cut €0.1B; non-IFRS cloud gross margin fell to 74.6% (−0.7ppt CC) on R&D and launch marketing.
M&A dilution and J-curves. Reltio, Dremio, and Prior Labs are data/AI tuck-ins, not growth buys — they add >€100M of H2 dilution and near-term losses while the payoff is years out. Monetizing via agents is the risk.
Macro and AI competition. The Middle East conflict weighs on customer decisions, software licenses fell −32%, and enterprises face rising AI token costs plus “good enough” AI-native ERP alternatives.

Next 12 Months

AI launches through H2 are the catalyst. Joule Work hits the market in Q3 (4,000 internal users today), ~50 assistants by end-Q3, 400+ suite agents by year-end. Monetizing at outcome-based prices is the proof point.
CCB conversion and H2 bookings. The second half carries most annual bookings; management guides CCB growth to slow slightly exiting the year but expects mid-teens H2 operating-profit growth as token spend is optimized.
Watch for: Middle East resolution, cloud-revenue guidance (€25.8–26.2B CC, maintained), M&A integration, AI agent accuracy at scale, and buyback pace (~€2.6B of the €10B program done).

Next 12-24 Months

Revenue acceleration expected in 2027 from CCB ramp. SAP guides 2026 total revenue growth to stay near 2025 (~10.6% CC) and to accelerate in 2027 as backlog converts. Software-support decline is expected to accelerate as customers move to cloud; ECC maintenance ending 2030 drives a structural migration wave.
AI consumption revenue will become increasingly material. SAP’s shift from seat-based to consumption-based pricing is “gradual evolution, not disruption.” As AI agents reach production accuracy, consumption revenue should compound. The key is when agents work reliably at scale for mission-critical processes — SAP says this year.
>€2B internal efficiency run-rate by end 2028 drives structural margin expansion. Combined with cloud mix shift (~74.6% cloud GM vs declining software support), non-IFRS OM should expand from ~28% toward the low-30s over the next 2-3 years. Total OpEx guided at 80-90% of revenue growth in 2027 provides the leverage framework.

Core Metrics Scorecard

	Q4'21	Q1'22	Q2'22	Q3'22	Q4'22	Q1'23	Q2'23	Q3'23	Q4'23	Q1'24	Q2'24	Q3'24	Q4'24	Q1'25	Q2'25	Q3'25	Q4'25	Q1'26	Q2'26	Q3'26E
Quarter End	Dec21	Mar22	Jun22	Sep22	Dec22	Mar23	Jun23	Sep23	Dec23	Mar24	Jun24	Sep24	Dec24	Mar25	Jun25	Sep25	Dec25	Mar26	Jun26	Sep26
R40 > 40%										✅			✅
R40 accelerate	✅	✅				✅		✅	✅	✅			✅					✅	✅	✅
TTM OP QoQ > 10%										✅	✅
TTM OP QoQ accelerate		✅	✅					✅		✅			✅		✅	✅		✅		✅
TTM FCF/OP > 60%	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	❌	❌	✅	✅	✅	✅	✅	✅
Debt/EBITDA < 3.5	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅
Total passes	3	4	3	2	2	3	2	4	3	6	3	2	4	1	3	3	2	4	3	4
Stock QoQ	+4%	-21%	-18%	-10%	+28%	+22%	+8%	-6%	+17%	+31%	+2%	+15%	+7%	+9%	+13%	-12%	-9%	-30%	-10%	-5%
P/E ttm	26x	19x	16x	13x	19x	24x	18x	18x	17x	18x	22x	24x	26x	36x	43x	35x	33x	23x	19x	18x

SAP’s R40 sits at ~36% in Q2 (revenue +9% + non-IFRS OM ~27%), with 3 of 6 checks passing. R40 has only occasionally tagged 40% because SAP is a moderate-growth, high-margin compounder rather than a hypergrowth SaaS name; the scorecard leans on financial quality — FCF/OP (consistently passing) and Debt/EBITDA (well below 3.5x).
P/E compressed from ~35x to ~18x while TTM OP roughly doubled to ~€10.5B. At ~18x P/E(ttm) SAP is among the cheapest large-cap enterprise-software names (CRM, NOW, WDAY all richer). The debate: whether the Q2 profit trim signals a durable margin ceiling or a one-quarter investment blip before AI monetization re-accelerates growth.

Chart: R40 vs Stock Price (Since 2020)

Chart: Scorecard Total Passes vs Stock Price (Since 2020)

Q1 FY2026 Key Data, reported 2026.04.23

Total revenue €9,555M (+12% CC). Cloud revenue €5,962M (+27% CC). Cloud ERP Suite €5,068M (+33% CC).
By segment: Cloud ERP driving growth. Business AI adopted by 36,000+ customers. Current cloud backlog €18.2B (+29% CC).
FY2026 cloud revenue raised to €23.6-24.0B (+27-29% CC). OP €11.2-11.5B. FCF ~€8.0B.

Key Takeaways from Earnings Call

AI agents “85-90% accurate but not enough” for mission-critical processes — SAP building ontology/knowledge graphs over 7.3M data fields and 120+ business processes to reach production-grade accuracy. Sapphire in Orlando (May) will announce “fundamental changes to portfolio” for agentic AI at scale. <60% of cloud revenue already non-seat-based. Consumption shift will be gradual, not disruptive.
Internal AI driving major productivity: 30% developer uplift (using Claude Code, GitHub Copilot), 100% of support tickets AI-assisted with 20% fully autonomous, consultants saving 1 day/week, €50M pipeline influenced by AI targeting. €2B efficiency target by end 2028. ~230 internal AI use cases live, 140+ AI extensions on BTP.
Middle East conflict creating overhang — Q1 “basically unscathed” but pipeline/bookings impacted from mid-March. Guidance maintained but needs Reltio acquisition to buffer shortfall. CFO: “slippery slope” if Strait of Hormuz stays closed. Total revenue growth flat (was expected to accelerate) due to services decline + macro. Revenue acceleration expected in 2027 from backlog ramp.

Source: SEC EDGAR annual and quarterly filings (20-F), company earnings conference calls and presentations.

Disclaimer: This report is for educational purposes only. NO investment advice.