SAP: Cloud business resilience offsets macro uncertainty; Goldman reiterates Buy but lowers target price

Overview

This report is Goldman Sachs' company research update on SAP following 2Q26. The core conclusion is that despite elevated macro uncertainty such as the Middle East situation, SAP's Current Cloud Backlog, Cloud ERP Suite, and S/4 HANA upgrade cycle remain resilient, and the post-SAPPHIRE sales pipeline was better than expected, making 2H26 cloud growth more visible; however, higher opex, pressure on cloud gross margin, and dilution from acquisitions such as Dremio and Prior Labs lead to a modest cut in EBIT assumptions.

Core views

Goldman Sachs reiterates its Buy rating on SAP, believing the company can continue to outperform peers on the back of its unique product cycle, cloud migration, S/4 HANA upgrades, and Business AI/Autonomous Enterprise platform. Management maintained full-year revenue guidance and indicated FY26 CCB may decelerate slightly; Goldman Sachs' model still assumes FY26 exit CCB organic growth of about 22%. On valuation, the target price is now based on about 22x 3Q27-2Q28E P/E, and the 12-month target price is lowered to €215.

Analysis framework

The report evaluates SAP's growth, margins, and target price by combining 2Q26 results, management guidance, post-SAPPHIRE pipeline feedback, cloud revenue and CCB trends, Non-IFRS EBIT and opex assumptions, M&A dilution impact, peer valuation multiples, reverse DCF, and Goldman Sachs' forecasting model.

Methodology notes

• Valuation methodsTarget P/E Multiple Method

  The target price is based on about 22x 3Q27-2Q28E P/E (including SBC).

  Goldman Sachs adjusted the target price basis from the previous approximately 24x 2Q27-1Q28E P/E to approximately 22x 3Q27-2Q28E P/E to reflect the updated earnings cycle and assumptions.

• Valuation methodsReverse DCF

  Assuming FY30 margins stabilize at 36%, the market implies long-term net income growth of about 4%.

  The report uses reverse DCF to test the long-term growth expectations implied by the current share price and compares them with SAP's cloud migration and product cycle outlook.

• factor frameworkGS Factor Profile

  Compares the stock with the market and industry peers across four attributes: Growth, Financial Returns, Multiple, and Integrated.

  Growth uses forward sales, EBITDA, and EPS growth; Financial Returns uses ROE, ROCE, and CROCI; Multiple uses valuation metrics such as P/E, P/B, EV/EBITDA, and EV/FCF.

• scenario/event frameworkM&A Rank

  Goldman Sachs uses a score of 1 to 3 to assess acquisition probability, where 1 is high, 2 is medium, and 3 is low.

  For companies with an M&A rank of 1 or 2, Goldman Sachs' standard methodology adds an M&A component to the target price; rank 3 is usually considered immaterial.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SAPG.DE

  Covered company in the report; SAP ordinary shares listed in Germany

  Strengths

  Strong CCB resilience, with 2Q26 CCB growth above expectations; solid S/4 HANA upgrade cycle; better-than-expected post-SAPPHIRE pipeline coverage; improved visibility for cloud revenue; medium-term structural opex efficiency upside remains.

  Weaknesses

  FY26 EBIT assumptions modestly lowered; lower cloud gross margin; rising opex and AI-related hiring costs; dilution from acquisitions such as Dremio, Prior Labs, and Reltio.

  Comparison

  Goldman Sachs believes SAP is positioned to outperform software peers thanks to its unique product cycle; its growth-adjusted valuation is broadly in line with software peers.

  Risks

  Macro risks, cloud subscription churn, insufficient S/4 HANA/cloud traction, weaker-than-expected cross-selling synergies, further opex increases, and management changes.

Key data

• RatingBuyBuy rating reiterated after 2Q26.
• 12-month target price€215.00Lowered from €230 to €215.
• ADR target priceUS$245.00Lowered from US$271 to US$245.
• Current price€128.32; ADR US$146.38Price shown in the report table.
• Implied upside67.5%; ADR 67.4%Based on target price and current price.
• 2Q26 CCB growth26% yoy ex-fx; approximately 25% organicAbove Goldman Sachs' 25% and consensus expectation of 24%.
• FY26 CCB organic growth forecastapproximately 22% yoy ex-fxGoldman Sachs expects CCB to still maintain approximately 22% organic growth at the FY26 exit.
• FY26 cloud revenue growth forecast24.4% yoy ex-fxPreviously forecast at 24.0%, slightly raised due to better license and subscription revenue.
• FY26 Non-IFRS EBIT growth forecast14.5% yoy ex-fxPreviously 14.8%, lowered due to lower cloud gross margin, slightly higher opex, and acquisition dilution.
• SAP FY26 operating profit guidance€11.8bn-€12.2bnPreviously €11.9bn-€12.3bn; the adjustment reflects approximately €100mn of dilution impact in H2 from the Dremio and Prior Labs acquisitions.
• FY26 revenue forecast€40,452.5mnShown in Goldman Sachs' forecast table.
• FY26 EBIT forecast€11,356.4mnShown in Goldman Sachs' forecast table.
• CY27E valuationEV/Recurring revenue approximately 4x; P/E approximately 15x; EV/FCF approximately 13xCorresponding to FY26-30 recurring revenue, EPS, and FCF CAGR of approximately 15%, 22%, and 17%.

Impact & implications

For investors, the key implication of the report is that SAP's near-term profit forecast has been moderately lowered, but medium-term cloud migration, S/4 HANA upgrades, and commercialization of the AI platform still support relatively high growth and valuation. The target price cut is driven more by earnings assumptions and valuation benchmark adjustments than by a negative turn in fundamentals; if CCB remains stable in 2H26 and AI adoption shows quantifiable evidence, the stock could still be supported by re-rating.

Risks

• Macro risk: SAP has broad exposure across multiple regions and industries, and macro volatility may affect demand.
• Cloud and subscription risk: customer churn during the transformation phase could weigh on revenue and estimates.
• Product execution risk: insufficient traction in S/4 HANA and cloud, or failure to benefit from cross-selling to the installed base, could drag on cloud growth and margins.
• Cost risk: increased opex investment, especially AI-related R&D and sales spending, could further pressure margins.
• M&A dilution risk: transactions such as Dremio, Prior Labs, and Reltio may continue to create short-term pressure on profits.
• Management change risk: further management turnover could affect execution stability.

What to watch

• Whether 2H26 CCB slows only slightly as management indicated.
• Whether the post-SAPPHIRE sales pipeline can convert into actual cloud revenue.
• Adoption rates and monetization evidence following the launch of Business AI Platform and Autonomous Enterprise.
• Whether improvement in cloud gross margin returns to a normalized path.
• Whether AI-related hiring, R&D, and S&M spending slow as management plans.
• The actual extent of H2 profit dilution from the Dremio, Prior Labs, and Reltio acquisitions.
• Whether FY26 operating profit can land near the midpoint of the €11.8bn-€12.2bn guidance range.