Overtaken by Siemens: SAP tumbles on the stock market

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SAP is no longer the most expensive DAX company. Siemens overtook the Walldorf-based software group in market capitalization on Thursday after SAP's share price fell by up to sixteen percent. The trigger for the sharp decline was the publication of the results for the fourth quarter and the fiscal year 2025 – particularly the development of the Current Cloud Backlog (CCB).

At first glance, the presented balance sheet appears quite solid. The results largely meet expectations. Revenue increased by three percent to 9.68 billion euros in the final quarter of 2025. Adjusted for currency effects, an increase of nine percent was recorded. Operating profit rose by 27 percent to 2.55 billion euros. The operating margin increased by 4.9 percentage points to 26.4 percent. Profit after tax grew by 17 percent to almost 1.9 billion euros.

Cloud business losing momentum

For the full year, revenue increased by 8 percent (currency-adjusted: 11 percent) to 36.8 billion euros. Operating profit and net profit more than doubled to 9.83 billion euros and 7.49 billion euros, respectively, as high restructuring costs from 2024 were no longer a burden.

A second look, however, reveals the weaknesses in business performance. The growth momentum in the cloud business, once the driving force behind the surge in SAP shares, is continuing to lose steam. At 5.61 billion euros, cloud revenue in the final quarter increased by only nineteen percent. In the previous year's reporting period, the increase was still 27 percent.

For the full year, revenue increased by 23 percent to 21.02 billion euros and, when adjusted for currency effects, at plus 26 percent to 21.66 billion euros, was at the lower end of the adjusted outlook from October 22. The total cloud backlog at the end of the year was 77.29 billion euros, an increase of 22 percent or – adjusted for currency effects – 30 percent. A year ago, the growth rate was still 43 percent or 40 percent adjusted for currency effects.

Financial analysts were particularly alarmed by the development of the Current Cloud Backlog – the order backlog for cloud services on a twelve-month basis. It grew by 16 percent to 21.05 billion euros in the fourth quarter, with currency-adjusted growth of 25 percent. The figures were significantly below the growth rates of the previous year. Furthermore, the self-imposed growth target of at least 26 percent was missed. For the new fiscal year, SAP also expects the currency-adjusted growth of the Current Cloud Backlog to slow down slightly further.

Explanations don't convince

SAP CEO Christian Klein and CFO Dominik Asam had a series of explanations for the declining growth momentum. For example, some large business deals, where revenues will only scale more significantly in two to three years due to complex implementation, have dampened growth. The same applies to contracts with government institutions, as these could not be included due to legally mandated clauses for ordinary termination.

In general, according to the managers' statements, contract negotiations in regulated industries are taking longer because, in view of the geopolitical situation, the issue of sovereignty is coming to the fore. Fundamentally, SAP sees the desire for more sovereignty in the cloud as a growth opportunity for its own products, as corresponding infrastructure offerings are now being certified in various countries step by step.

These explanations have apparently had as little persuasive power for the share price as the announcement of a new, two-year share buyback program with a volume of up to 10 billion euros. The current price drop ultimately continues a downward trend in SAP shares that began months ago. This is fueled by the general fear among investors and financial analysts that AI applications will increasingly automate or replicate functions in the area of business applications in the future.

Well-positioned in AI?

At SAP, they naturally see things differently. According to Klein, Business AI, as the AI offering from Walldorf is called, was included in two-thirds of cloud contract signings in the fourth quarter. Overall, the SAP CEO believes the company is in a unique position to win the AI race in the business environment. The manager remains steadfast in his belief that while LLMs would be "super good" for unstructured data, SAP's Business AI with the Joule agent platform and the Business Data Cloud is essential for the semantic unification of business data. This unlocks real value for companies.

Companies such as Siemens, DeAgostini, or Uniper are already said to have achieved significant improvements in certain areas. However, this narrative is not resonating with investors. Even if the share price is not attractive currently, Klein intends to stick to his strategy, "regardless of what the market thinks." He is betting that SAP will be among the winners in the second wave of the AI race – once the hype surrounding the AI infrastructure to be built has subsided and the value for business comes into focus.

(mki)