SAP stock dips after Q3: strong cloud growth, softer orders, guidance tweaked

Bassyonni

ago 4 hours

SAP stock

SAP stock slipped in late trading on Wednesday after the German software group posted a mixed third quarter—headline profits rose and cloud momentum stayed firm, but revenue landed shy of brisk expectations and management flagged a slower pace in one closely watched order metric. The company simultaneously fine-tuned its 2025 outlook, nudging profit and cash-flow targets up while steering cloud revenue toward the lower end of its prior range.

The numbers that moved SAP today

Cloud revenue: up 22% year over year (~27% at constant currency), still the engine of the story.
Current cloud backlog: €18.8B, up 23% (~27% cc), indicating healthy multi-year demand—but not quite the step-up some bulls hoped for.
Total revenue: up 7% (~11% cc), a respectable print that nevertheless trailed the whispered “beat-and-raise” scenario.
Operating profit: IFRS +12%, non-IFRS +14% (~+19% cc), reflecting mix shift to cloud and ongoing cost discipline.

The combination—good growth, slightly light top line, and a backlog trajectory that looks more normalized than overheated—was enough to cool after-hours enthusiasm.

Outlook: higher profit and cash flow, more conservative cloud range

Management updated full-year 2025 guidance on three fronts:

Cloud revenue: now guided near the lower end of the prior €21.6–€21.9B range (cc growth still mid-to-high-20s%).
Non-IFRS operating profit: seen toward the upper end of €10.3–€10.6B (+26–30%).
Free cash flow: raised to €8.0–€8.2B from “about €8.0B,” signaling confidence in working-capital and earnings conversion.

The message: execution and profitability remain sturdy, but management is building in prudence on how fast cloud revenue stacks up over the next few quarters.

What the market is debating

1) Orders versus deliveries.
Backlog and cloud revenue continue to grow quickly, yet investors fixated on whether new cloud commitments are accelerating or leveling as large enterprises pace multi-year digital programs. A modest deceleration—especially after two years of outsized gains—can pressure the multiple even when reported revenue looks fine.

2) Currency and macro noise.
Constant-currency growth outpaced reported figures. With Europe and parts of manufacturing still uneven, deal timing and FX remain swing factors. Management alluded to pipelines that support medium-term ambitions but acknowledged quarter-to-quarter variability.

3) AI monetization cadence.
SAP’s pitch hinges on embedding AI across its Business Suite and Data Cloud, capturing price and upsell without materially raising churn. Investors want clearer evidence that AI-infused SKUs lift ARPU and shorten sales cycles; today’s guide suggests progress but stops short of a breakout.

Bull and bear takeaways from Q3

Bull case strengthened by:

Resilient cloud engine: >20% growth with expanding margins is still elite at SAP’s scale.
Profit & FCF upgrade: Tight execution turns revenue into cash, supporting 2026 ambitions.
ERP anchor moat: Cloud ERP suite growth outpaced overall cloud, reinforcing competitive position in mission-critical workloads.

Bear case kept alive by:

Top-line miss optics: Even a small shortfall stings after a big run in the shares.
Order-book tempo: “Very good” versus “explosive” matters for a premium valuation; any hint of digestion among industrial customers invites multiple compression.
Guide nuance: Higher profits but cloud at the low end reads as cautious on near-term expansion.

What to watch next (near-term catalysts)

Q4 pipelines and close rates: Seasonally important quarter will test whether conservative language was sandbagging or a realistic read.
S/4HANA Cloud migrations: Net-new wins are vital, but large on-prem conversions are the flywheel; signs of accelerated cutovers would be a powerful tell.
AI attach metrics: Concrete disclosures on AI-driven uplift—pricing, seat expansion, or new module adoption—could reset sentiment quickly.
Free-cash-flow execution: Delivery against the €8.0–€8.2B target underpins options for buybacks, M&A, or debt management in 2026.

SAP stock is digesting a “good, not perfect” quarter: cloud growing in the 20s, margins improving, and cash flow edging higher—offset by revenue that didn’t dazzle and an order backdrop that feels more measured than manic. For long-term holders, the thesis of a higher-quality, cloud-heavier SAP remains intact. For short-term traders, the setup turns on whether Q4 and early-2026 datapoints re-accelerate cloud signals enough to defend the multiple that a European software leader now commands.