SAP Stock’s AI Existential Crisis: Can Customers Just Build It Themselves?

SAP stock cratered 15% on January 29—the steepest single-day drop since October 2020. What triggered this bloodbath? One number: current cloud backlog growth of 16% in Q4 versus analyst expectations of 26%. On a constant currency basis, the growth was 25%, still lower than what the company guided for toward the end of Q3. The stock fell to its lowest level since mid-2024, erasing billions in market value instantly.

But didn’t SAP post solid revenue and profit numbers? Absolutely. Q4 revenue reached €9.7 billion versus €9.4 billion last year. Operating profit jumped to €2.6 billion from €2 billion. Full-year 2025 cloud revenue surged 26% at constant currency to €21.02 billion. Cloud ERP Suite revenue grew 32% to €18.12 billion. Non-IFRS operating profit hit €10.42 billion, up 28%. Free cash flow nearly doubled, soaring 95% to €8.24 billion. These are strong numbers.

So why did investors panic? Because in enterprise software, backlog is your future. Current cloud backlog of €21.1 billion ($25.3 billion) growing at 16% signals deceleration. The total cloud backlog reached €77.29 billion (up 30%), but investors care about near-term conversion to revenue. When backlog growth misses by 10 points, it questions the growth narrative you’re paying premium multiples for. SAP blamed the miss on—large deals with longer ramps. Translation: big customers are taking longer to deploy and demanding flexibility. That’s not a one-quarter blip—it’s a structural shift in how enterprise software gets sold.

CEO Christian Klein tried spinning it positively, saying Q4 backlog “laid a strong foundation to accelerate revenue growth through 2027.” But the market focused on the guidance: current cloud backlog growth will “slightly decelerate” in 2026 from 2025’s 25% rate. Cloud revenue growth is projected at 23-25% for 2026 to €25-26 billion. That’s deceleration from 26% in 2025.

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What about the AI risk that CFO Asam discussed? Dominik Asam addressed this head-on: “One of the killer applications of AI is to completely transform the way companies develop code.” He asked the critical question: “Will customers now be able to do everything themselves, and that means the pie will shrink?” This is existential for enterprise software. SAP employs 35,000 developers. If AI enables customers to build solutions internally, that threatens the entire market.

Looking at profitability, the operating margin expansion to €10.42 billion in non-IFRS operating profit (28% growth) shows operating leverage. Free cash flow doubling to €8.24 billion demonstrates strong cash conversion. These are high-quality earnings. But software investors buy future growth, not current profitability. When the growth outlook dims, current profitability doesn’t save the valuation multiple. This is exactly what has happened with SAP–multiple compression.

Let’s talk valuation context. SAP stock now trades at levels not seen since mid-2024. For context, SAP trades at a premium to most enterprise software peers on revenue and profit metrics, but growth justifies premium multiples. When growth decelerates, those multiples compress violently.

At $200, SAP stock trades at 27 times its trailing adjusted earnings of $7.34 per share. This 27x multiple is significantly lower than the stock’s historical average of approximately 35x. While our current price estimate for SAP stands at $330, this will be revised downward to reflect the latest financial results and slowing growth. Nonetheless, with the average analyst price target at $324, SAP stock appears undervalued at the $200 level.

Despite this apparent undervaluation, the market remains skeptical. SAP’s attempt to bridge the gap—a €10 billion share repurchase program starting in February 2026—feels like a ‘band-aid on a bullet wound.’ While buybacks signal confidence, a €10 billion injection over two years cannot offset a €40 billion market cap evaporation in a single day. It’s a positive step, but it doesn’t solve the structural concern: investors aren’t looking for their money back; they’re looking for the growth they were promised.

What about the competitive position? SAP competes with Oracle, Salesforce, Microsoft, and Workday in various segments. Cloud ERP is SAP’s core strength. The 32% growth in Cloud ERP Suite revenue shows product-market fit. But if large enterprises are taking longer to commit and deploy, that’s an industry headwind affecting everyone, not just SAP.

Here’s the investment question: Is this a buying opportunity or a broken story? At 15% down, SAP surely looks undervalued. The business fundamentals remain strong—dominant market position, profitable growth, massive free cash flow. But the cloud backlog miss and guidance for further deceleration reset expectations. The AI threat Asam acknowledged isn’t going away.

For investors, this comes down to conviction. If you believe SAP’s cloud transition still has years of strong growth ahead and yesterday was an overreaction to one quarter of slower bookings, the selloff creates a solid opportunity. But if you think large enterprise customers will slow cloud adoption due to economic uncertainty or AI capabilities, the deceleration is just beginning. The market chose the latter interpretation yesterday, and violently.

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