Deutsche Bank reiterates Buy on SAP, believing evidence of accelerating growth in FY27e is accumulating

Overview

This report is Deutsche Bank's company update on SAP following its Q2 results. The core conclusion is that SAP's current cloud backlog CCB growth continues to outpace cloud revenue growth, increasing visibility into a reacceleration of group growth in 2027; early customer demand and pricing feedback for the AI product portfolio are positive, and the report does not yet see the substantive impact of AI on SAP's business model that the market fears. Therefore, the report reiterates a Buy rating and maintains the target price at EUR 200.00.

Core views

The report believes SAP remains on a medium-term growth path driven by cloud migration and AI. Q2 results were strong overall, especially CCB, cloud revenue, and FCF; short-term pressure on profits comes from investment in AI products, AI token costs, sales and marketing spending, and dilution from acquisitions such as Reltio, Dremio, and Prior Labs, but these investments are viewed as necessary spending to strengthen SAP's AI strategic positioning. Deutsche Bank expects FY27e group growth at constant currency to improve from about 10.5% this year to about 12%, and the reacceleration in growth could improve investor sentiment.

Analysis framework

The report uses a combination of earnings tracking, key operating metrics, management conference call feedback, and valuation multiples: it first compares Q2 revenue, cloud revenue, CCB, operating profit, and FCF against expectations, then evaluates changes to FY26 guidance, visibility into FY27e growth, AI product commercialization progress, and cost efficiency improvements, and finally maintains its valuation view using a framework of about 20x FY27e EV/uFCF.

Methodology notes

• Fundamental researchEarnings update and guidance assessment

  Compare actual Q2 results with DBe and market expectations, and assess the future earnings path in conjunction with FY26 guidance adjustments.

  The report focuses on revenue, cloud revenue, CCB, non-IFRS operating profit, FCF, and cost investment, and believes the short-term profit miss versus expectations is mainly due to strategic investment and acquisition dilution rather than deterioration in core demand.

• SaaS operating metricsCurrent cloud backlog CCB leading indicator

  CCB growth leads cloud revenue growth and can serve as a forward-looking signal of future cloud revenue acceleration.

  SAP's Q2 CCB grew 26% year-on-year at constant currency, above the 24% cloud revenue growth rate and also above the midpoint of FY26 cloud growth guidance, supporting the view of accelerating FY27e cloud revenue and group growth.

• Valuation methodsFY27e EV/uFCF multiple

  Value SAP at about 20x FY27e EV/uFCF and assess valuation attractiveness in conjunction with an approximately 7% FCF yield.

  The report believes SAP is growing faster than the broader global software peer group and that its AI strategy is evolving rapidly, so a modest premium to peers is justified; the current valuation is attractive against the backdrop of potential accelerating growth.

Asset mapping & comparison

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

• SAP SE Equity (SAPG.DE / SAP GR)

  Primary subject of the report; Deutsche Bank reiterates a Buy rating.

  Strengths

  Strong CCB and cloud revenue growth, with Cloud ERP Suite continuing to drive growth; strong early customer demand for AI products, while SaaS pricing power remains solid; FCF performance is better than expected, and visibility into accelerating FY27e growth is improving.

  Weaknesses

  Q2 non-IFRS operating profit was below expectations, with R&D, S&M, AI token costs, and acquisition dilution weighing on short-term margins; support revenue continues to decline due to cloud migration.

  Comparison

  The report believes SAP is growing faster than the broader global software peer group, so a modest valuation premium of about 20x FY27e EV/uFCF is justified.

  Risks

  The macro environment, geopolitical conflicts, weaker-than-expected AI commercialization, acquisition integration, and cost efficiency improvements falling short of expectations could all affect growth and valuation re-rating.

Key data

• Q2 revenueEUR 9,878m, up 11% year-on-year at constant currencyGrowth remained solid relative to 12% in Q1/26 and 9% in Q4/25.
• Q2 cloud revenueEUR 6,281m, up 24% year-on-year at constant currencySlightly above Deutsche Bank's expectation.
• Current cloud backlog CCBUp 26% year-on-year at constant currencyAbove Deutsche Bank's 25% expectation and Bloomberg consensus of 24%; acquisitions contributed less than 1 percentage point.
• Cloud ERP SuiteEUR 5.53b, up 27% year-on-year at constant currencyRemains the main driver of cloud growth.
• Non-IFRS operating profitEUR 2,743m, up 9% year-on-year at constant currency, margin 27.8%Below Deutsche Bank's EUR 2,858m expectation, affected by acquisitions, R&D, and S&M investment.
• Free cash flow FCFEUR 3,002m, up 27% year-on-yearSlightly above Deutsche Bank's expectation.
• FY26 cloud revenue guidanceEUR 25.8-26.2b, up 23-25% year-on-year at constant currencyThe company largely maintained its full-year outlook.
• FY26 Cloud & Software revenue guidanceEUR 36.3-36.8b, up 12-13% year-on-year at constant currencyReflects continued cloud business growth and declining traditional support revenue.
• FY26 FCF planabout EUR 10bSupported by positive working capital dynamics, operational improvement, and reduced SBC-related cash outflows.
• AI product roadmapNearly 50 assistants and more than 400 Autonomous Suite agents by year-endDemand for pilot projects following the Sapphire launch exceeded expectations, with positive customer feedback.

Impact & implications

If the leading CCB signal translates into accelerating FY27e cloud revenue and group revenue, SAP may replicate the prior investor sentiment inflection seen during the cloud transformation phase. Short-term margins are affected by AI and acquisition investment, but the report believes these investments benefit medium-term competitiveness, and operational efficiency, hiring, travel, and AI token usage controls in the second half may improve profit growth momentum.

Risks

• If the potential impact of AI on the traditional SaaS business model and pricing power begins to emerge, it could weaken the report's medium-term growth view.
• Acquisitions such as Reltio, Dremio, and Prior Labs remain in the investment phase and may continue to dilute FY26 profits.
• If investment in R&D, S&M, AI tokens, and AI talent cannot be absorbed through revenue growth or efficiency gains, operating leverage may be pressured.
• Middle East conflict and macro uncertainty have already affected some booking activity, and if conditions worsen they may affect orders and CCB.
• Accelerating cloud migration will lead to declining support revenue; if the pace of cloud revenue conversion falls short of expectations, total revenue growth may be affected.
• The current valuation view depends on accelerating FY27e growth and improved FCF; if delivery falls short, the share price may come under pressure.

What to watch

• Whether CCB growth in the second half of FY26 declines only slightly as management expects, and maintains an exit growth rate of about 23% by year-end.
• Whether FY27e group growth at constant currency can rise from about 10.5% to about 12%.
• Formal commercialization, pricing, and customer conversion for Autonomous Suite, Joule Work, and AI ERP migration toolchains.
• Whether cost controls in R&D, S&M, AI token usage, hiring, and travel can drive improved profit growth in H2.
• The integration of acquisitions such as Reltio, Dremio, and Prior Labs and their actual impact on CCB, cloud revenue, and operating profit.
• Whether RISE project wins and indirect channel order growth can continue to outpace the direct channel.