Key Morningstar Metrics for SAP
- Fair Value Estimate: EUR 265
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of SAP’s Earnings
SAP’s SAP fourth-quarter results and 2026 guidance were broadly in line with the company-compiled consensus. However, the current cloud backlog growth of 25% at constant currencies was lower than expected. Shares were down 10% in intraday trading after the results.
Why it matters: SAP posted generally solid results. However, the market is fixated on the long-term cloud conversion story and is generally anxious about generative artificial intelligence disruption in software names. As such, any hint of weakness can lead to an outsize negative reaction in the share price.
- Current cloud backlog growth is arguably the best indicator of the health of the cloud conversion cycle. SAP asserted during the quarter that it would be disappointed if it didn’t end the year above 25%. Hence, 25% is a disappointment.
- SAP said the current cloud backlog growth would have been 1 percentage point higher, but was negatively affected by large deals with ramps in the outer years and mandated termination clauses. Regardless, the market has a “shoot-first” mentality around software names in this environment.
The bottom line: We maintain our EUR 265 fair value estimate for wide-moat SAP and view the shares as undervalued. For the ADR, we raise to USD 317 from USD 311, due to currency changes. Our estimates are broadly in line with the company-compiled consensus.
- Shares have been in decline for several months, which we see as driven by indiscriminate market angst around the threat of gen AI to all software companies. We think it’s highly unlikely that gen AI can displace SAP’s deeply entrenched position within its customer operations.
Coming up: SAP’s 2026 guidance is for EUR 25.8 billion-EUR 26.2 billion in cloud revenue at constant currencies (23%-25% constant-currency growth) and EUR 11.9 billion-EUR 12.3 billion EBIT at constant currencies (14%-18% constant-currency growth).
