SAP 2Q26 cloud backlog shows healthy growth; margins under short-term pressure but positive view unchanged

Overview

This report reviews SAP's 2Q26 results. Bernstein believes the quarter was 'good but not perfect': growth and backlog were healthy, while margins came in slightly below expectations. The core view is that SAP remains a high-quality compounding asset driven by cloud migration, margin improvement, and AI enablement, and that near-term margin pressure looks more like one-off investment and acquisition dilution rather than fundamental deterioration.

Core views

First, Current Cloud Backlog is an important leading indicator of cloud revenue over the next 12 months, and SAP's 26% constant-currency CCB growth this quarter eased market concerns about slowing growth. Second, margins below expectations will be a focus for bears, but software companies have strong cost-control capabilities, and management also emphasized that R&D and marketing investment will not continue to rise at this quarter's pace for the rest of the year. Third, SAP's ERP and mission-critical enterprise applications have high stickiness, and enterprise customers are more inclined to buy AI capabilities from packaged software providers rather than replace core systems. Fourth, the slight target price cut reflects a valuation multiple reduction from 29x to 28x, not deteriorating execution by the company.

Analysis framework

The report analyzes 2Q26 actual results against Visible Alpha consensus, Bernstein forecasts, FY26 guidance, the relationship between CCB and cloud revenue, margin drivers, AI's impact on enterprise software, and peer valuation comparisons. The focus is not on a single revenue beat, but on whether backlog can support subsequent growth, whether margin pressure is controllable, and whether SAP has defensive and monetization capabilities in an uncertain AI environment.

Methodology notes

• Earnings comparisonActual results versus consensus

  2Q26 Results vs Consensus

  SAP's actual results are compared with Visible Alpha consensus using metrics such as revenue, cloud revenue, operating profit, margin, and EPS to determine the sources of upside or downside versus expectations.

• Leading growth indicatorCurrent Cloud Backlog

  CCB as a growth indicator for the next 12 months

  The report treats Current Cloud Backlog as an important leading indicator of SAP's cloud revenue growth over the next 12 months, especially when consumption-based revenue remains a relatively small proportion, making CCB growth highly indicative of subsequent revenue.

• Valuation methodsTarget multiple method

  Adjusted P/E multiple

  The target price was lowered from $323/€276 to $319/€273 because forecasts were rolled forward and the valuation multiple was reduced from 29x to 28x to reflect lower peer valuations.

Asset mapping & comparison

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

• SAP / SAP.GR

  Core covered name

  Strengths

  Cloud migration progressing, CCB stronger than expected, high ERP mission-criticality, relatively proactive AI positioning, and substantial cost-control levers.

  Weaknesses

  This quarter's operating profit and margin were below expectations, and FY26 operating profit outlook was slightly lowered due to acquisition dilution.

  Comparison

  The report says SAP is one of its preferred software names and has relative safe-haven characteristics in an uncertain AI environment.

  Risks

  Macroeconomic uncertainty, Middle East conflict, acquisition integration, and the possibility that a shift in AI business models from subscription to consumption could weaken the correlation between CCB and revenue.

• Workday, Oracle

  Sector read-through

  Strengths

  SAP's results show stable spending on mission-critical enterprise software, which may be a positive signal for similar enterprise application software companies.

  Weaknesses

  Still need to observe each company's own order trends, cloud growth, and margin performance.

  Comparison

  SAP's ERP mission-criticality and cloud migration cycle are viewed as more defensive.

  Risks

  The overall software sector remains affected by AI substitution narratives, macro volatility, and changes in IT budgets.

• Microsoft

  Name to watch next

  Strengths

  Its upcoming results could provide more evidence on IT spending trends.

  Weaknesses

  This report does not provide detailed conclusions on Microsoft.

  Comparison

  The report views Microsoft's results as a further signal to validate the software and IT spending environment.

  Risks

  If large software companies deliver weaker results, confidence in sector stability may be undermined.

Key data

• Current Cloud Backlog€22.93B; +27% YoY, +26% at constant currencyAbove consensus expectations of about 24%, with the Reltio acquisition contributing less than 1 percentage point.
• Cloud Revenue€6.28B; +22% YoY, +24% at constant currencyLargely in line with consensus, but below CCB growth; the report believes the gap may narrow later.
• Total Revenue€9.88B; +9% YoY, +11% at constant currencyBasically in line with consensus.
• Non-IFRS Operating Profit€2.74B; +7% YoY, +9% at constant currencyAbout 5% below consensus, affected by R&D, marketing, acquisitions, and cloud revenue growth.
• Non-IFRS Operating Margin27.8%About 150bps below consensus; the report believes this is mainly short-term noise rather than damage to the long-term margin story.
• FY26 Cloud Revenue guidance+23% to +25% at constant currency, about €25.8B to €26.2BThe company maintained its revenue outlook.
• FY26 Operating Income guidance€11.8B to €12.2B on a constant-currency basisOperating profit outlook was slightly lowered due to dilution from the Dremio and Prior Labs acquisitions.
• Share repurchasePlan of up to €10B, with about $2.6B repurchased as of 2026-06-30The report believes the company can still flexibly manage free cash flow and enhance shareholder returns.

Impact & implications

The report's implications for SAP's share price and the software sector are positive overall. For SAP, strong CCB and maintained revenue guidance support visibility for growth in 2H26 and FY27, while margins are below expectations in the short term but can be repaired through cost control. For the software sector, SAP's results indicate that spending on mission-critical enterprise applications remains resilient and provide a somewhat positive read-through for enterprise software companies such as Workday and Oracle.

Risks

• Operating margin improvement comes in below expectations, weakening the Outperform investment thesis.
• If R&D, AI token, marketing, and Autonomous ERP launch investments continue to rise, margins may be pressured.
• Acquisitions such as Dremio, Prior Labs, and Reltio bring integration and short-term dilution risks.
• Macroeconomic uncertainty and Middle East conflict may delay some customer transactions.
• AI may shift software pricing from subscription to consumption, reducing over time the relevance of CCB as a leading revenue indicator.
• If third-party AI layers weaken SAP's control over the application and data layers, AI upside may be lower than expected.

What to watch

• Whether Current Cloud Backlog continues to remain stable and above market expectations in subsequent quarters.
• Whether Cloud Revenue growth catches up with or approaches CCB growth.
• Whether 2H26 operating margin improves as management plans.
• Whether the cut to FY26 operating profit guidance is limited only to acquisition dilution.
• Customer adoption and monetization progress of Autonomous ERP, Joule Studio 2.0, and Business Data Cloud.
• Whether the approaching end of ECC support continues to drive customer migration to Cloud ERP Suite.
• The impact of Middle East conflict, FX, and macro volatility on large enterprise software transactions.