German software company SAP saw its shares tumble by 14% on Thursday, hitting the lowest levels since mid-2024. This sharp drop followed a report of disappointing growth in its cloud contract backlog for the fourth quarter. It’s the most significant fall since a 22% plunge in October 2020 when results failed to impress.
SAP’s cloud backlog grew by 16% to 21.1 billion euros (around $25.3 billion), but analysts from UBS said this was below expectations of 26% growth. In their earnings, SAP pointed out that large transformational deals with high future revenues and legal termination clauses affected this slow growth by about 1 percentage point.
CEO Christian Klein emphasized that despite the sluggish fourth quarter, the company has built a “strong foundation” to boost revenue through 2027. However, the outlook for 2026 indicates a slight deceleration in cloud backlog growth.
Overall revenue for SAP increased to 9.7 billion euros, slightly up from 9.4 billion euros a year earlier. Operating profit also saw an uptick, reaching 2.6 billion euros, compared to 2 billion euros previously.
The tech landscape, especially in AI, has changed rapidly. CFO Dominik Asam already expressed concerns about how AI might alter the software development landscape. He noted that if customers can handle more software development themselves, it could shrink the market for traditional software providers like SAP.
Recent industry trends highlight that companies are increasingly adopting AI tools. In a survey by Deloitte, around 70% of organizations reported investing in AI technologies in 2023, marking a 20% increase from 2022. This growing focus on AI adds pressure on legacy companies to adapt quickly or risk being left behind.
As SAP navigates this evolving landscape, it’s crucial for them to leverage new technologies and remain competitive, especially with rising competition in cloud services and AI tools.
For more insights on SAP’s performance and the broader tech landscape, you can check CNBC’s detailed coverage here.
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