Shares in SAP rallied on Friday after the German software giant reported better-than-expected first-quarter profit and reaffirmed its long-term cloud outlook.
The strong result came even as concerns around artificial intelligence continue to weigh on the broader sector.
SAP’s American depositary receipts rose 7.3% to $175.31, recovering from a 6.2% decline in the previous session.
The rebound came as investors responded positively to strong cloud performance and resilient demand trends.
Strong cloud growth drives earnings beat
SAP reported first-quarter non-IFRS earnings of €1.72 per share, ahead of analyst expectations of €1.65, while revenue rose 6% year-on-year to €9.55 billion, in line with forecasts, according to a FactSet poll.
The company’s cloud division remained the primary growth driver. Cloud revenue climbed 19% to €5.96 billion, slightly above expectations of €5.89 billion.
SAP also reported a cloud backlog of €21.9 billion, up 20% from a year earlier, signaling sustained demand momentum.
SAP reiterated its expectation for 2026 cloud revenue in the range of €25.8 billion to €26.2 billion.
It added that total revenue growth in constant currencies is expected to remain at similar levels in 2026 as in 2025, before accelerating in 2027.
The outlook, however, is contingent on macro stability.
SAP noted that its guidance assumes a de-escalation of the Middle East conflict and the successful closing of its planned acquisition of Reltio, a data management software provider, which is expected to be completed in the second or third quarter.
AI concerns linger but offer unexpected upside
The earnings report comes against a backdrop of pressure on software stocks, as investors reassess the sector amid concerns that advances in artificial intelligence could disrupt traditional software business models.
SAP’s chief financial officer, Dominik Asam, acknowledged that the company’s share price decline in the first quarter had an unusual side effect.
“The SaaSpocalypse debate and the related 28% decline in our share price during the first quarter alone left its traces in that position,” Asam said during a call with analysts.
“While we hedge the lion’s share of our cash-settled grants, the sheer magnitude of the move in the unhedged portion, in combination with related social charges that are not hedged, provided this, I have to admit, unintended relief, adding to continued strong general cost discipline.”
The broader selloff has been significant, with the iShares Expanded Tech-Software ETF falling as much as 29% this year at its lows, reflecting investor anxiety around AI disruption.
Outlook tied to macro and execution risks
Despite strong operational performance, SAP’s outlook remains tied to external risks, particularly geopolitical developments.
CFO Dominik Asam highlighted the potential impact of prolonged disruption in global trade routes.
“We did also judge whether our outlook of an acceleration in 2027 could be confirmed, and yes we can confirm that — under the caveat that we don’t see too long of a continuation of the shutdown of the Strait of Hormuz,” Asam said in a Barron’s report.
“But I would venture to say that in such a meltdown scenario, SAP is probably the lesser of your concerns in terms of exposure in capital markets,” he added.
CEO Christian Klein also pointed to both the promise and limitations of artificial intelligence in enterprise applications.
“Is this enough when you are touching the payroll, the finance, the financial close, the supply chains of a customer? No, it’s not enough. It’s not that the customers don’t see the value. They see the value. But we have to go the last mile,” he said.
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