SAP’s fourth-quarter results and 2026 guidance met company-compiled consensus, but cloud backlog growth of 25% at constant currencies fell below expectations. Shares dropped 10% in intraday trading. The market focuses on long-term cloud conversion and fears AI disruption, leading to exaggerated reactions to any weakness in share price.

Current cloud backlog growth highlights the health of the cloud conversion cycle for SAP. Despite assertions it would end the year above 25%, SAP’s 25% growth was seen as disappointing due to factors like large deals with ramps in outer years. Market’s cautious approach towards software names impacts reactions to such news.

Maintaining a fair value estimate of EUR 265 for SAP, with undervalued shares, Morningstar raises ADR estimate to USD 317 from USD 311 due to currency changes. Decline in shares attributed to market fears of gen AI threat to software companies, unlikely to displace SAP’s strong position within customer operations.

SAP’s 2026 guidance predicts EUR 25.8 billion-EUR 26.2 billion in cloud revenue at constant currencies (23%-25% growth) and EUR 11.9 billion-EUR 12.3 billion EBIT at constant currencies (14%-18% growth). Morningstar Equity Research originally published this analysis as a stock note.

Read more at Morningstar: SAP Earnings: Current Cloud Backlog Growth Disappoints