SAP cloud growth beats estimates as Europe's software giant doubles down on AI integration

SAP Reports Cloud Growth That Beats Estimates in AI Push

SAP SE reported revenue growth from its cloud services that beat analysts' estimates after Europe's biggest software company began integrating artificial intelligence agents into the service. Cloud revenue increased to €5.96 billion ($7 billion) in the first quarter, Walldorf, Germany-based SAP said Thursday in a statementBloomberg Terminal. That compared with an average analyst estimate of €5.9 billion, according to data compiled by Bloomberg. The current cloud backlog, a measure of deals growth coming in over the next 12 months, was 25% at constant currencies, SAP said. That was in line with analysts' estimates. In the company's January financial report, SAP stock slid after the metric came in at 25%, a level that Chief Executive Officer Christian Klein had previously said would be a "disappointment." SAP maintained its annual forecast for cloud revenue of €25.8 billion to €26.2 billion. Klein is working to convince customers and investors that SAP's new AI services, integrated into the company's cloud services, are worth paying for. The company's shares have sunk this year on fears that new AI firms will outrun classic enterprise software by automating tasks that could lead to fewer software subscribers and lower revenues for the incumbents. The CEO has warnedBloomberg Terminal that the transition to AI may come with "short-term pain," but ultimately sees SAP reorienting its business model to charging customers based on their AI consumption and away from subscriptions. Resellers and customers have criticized the company's early AI tools, Bloomberg reported. SAP shares closed at €140.70 in Frankfurt on Thursday and have declined 32% this year. The company's American depositary receipts gained about 7% in extended trading after the results were released. The software company was the most valuable in Europe at one point last year before fears of the impact of AI and the sustainability of its cloud growth hit the stock. Now it's out of the Top 10. Klein is reorganizing SAP's board to take on more responsibility for the enterprise's newest overhaul. In the company's last major technological transition, Klein in 2020 shifted SAP from selling software licenses that ran locally on customers' machines to cloud subscriptions. The stock sank at the time and the recovery took about two years. SAP faces three challenges, JPMorgan Chase & Co. analysts including Toby Ogg said in a note before the results. Those are: decelerating cloud backlog growth, the potential shift toward consumption-based pricing that comes with AI and intensifying competition driving a need for higher investments. Unlike the well-understood cloud shift, "a move to a more consumption-based revenue model is uncharted territory," the analysts wrote. "Today's competition is also moving at a dramatically faster pace than anything we've seen before."

SAP posts solid earnings results to shrug off latest software stock slaughter - SiliconANGLE

SAP posts solid earnings results to shrug off latest software stock slaughter Shares of the European enterprise software maker SAP SE registered solid gains in late-trading today after the company delivered earnings results that came in ahead of expectations. The company's American depository receipts gained more than 6% in the after-hours trading session, reversing a decline of just over 6% that occurred in regular trading, prior to the results coming out. SAP was one of a number of software stocks that took a beating earlier today, following unspectacular earnings results from major players like IBM Corp. and ServiceNow Inc. The German enterprise resource planning software giant reported first-quarter earnings of €1.72 ($2.01) per share on revenue of €9.55 billion, up 6% from the same period one year earlier. Those numbers do not adhere to International Financing Reporting Standards, however, so they exclude one-off items such as amortization and restructuring costs. The results were solid though, with analysts expecting the company to report earnings of just €1.65 per share on similar revenue. SAP's gains during the quarter were driven by its cloud business, which has benefitted from the artificial intelligence boom that some analysts fear will ultimately kill all software companies. The unit generated sales of €5.96 billion, up 19% from a year earlier and above the Street's forecast of €5.89 billion. Meanwhile, the company ended the quarter with a backlog of €21.9 billion worth of cloud orders, up 20% from one year earlier. Chief Executive Christian Klein (pictured) hailed the company's strong start to the year. "This performance is supported by our momentum in Business AI as we are already delivering real outcomes for customers today," he insisted. "We are growing faster than the market and are gaining share as customers expand across our Suite and with our AI solutions." SAP reiterated its annual forecast of between €25.8 billion and €26.2 billion in cloud revenue, which is better than the analyst consensus estimate of €25.62 billion. That said, SAP warned that the guidance "assumes a near-term de-escalation of the conflict in the Middle East and the imminent consolidation of Reltio." SAP revealed plans to acquire Reltio Inc. a provider of data integration and management technologies, last month, saying it expects the transaction to close swiftly, by the second or third quarter. SAP is buying Reltio to power its growing fleet of autonomous AI agents, and will use the company's technology to build the integrations its intelligent bots need to pull in data from third-party sources. The company's total revenue forecast for fiscal 2026 predicts similar growth levels to last year, but officials said today they believe this will begin to accelerate in fiscal 2027. Despite today's after-hours gains, SAP's stock is still reeling from the damage done to the software industry by the rise of AI agents, down more than 33% in the year-to-date.