JPMorgan downgrades SAP to Neutral due to slowing growth in cloud business backlog; stock price declines

Investing.com - JPMorgan has downgraded SAP (NYSE:SAP) (ETR:SAPG) from Overweight to Neutral, citing that the company’s recent outlook has weakened due to a slowdown in cloud backlog growth and increased uncertainty from strategic shifts. The bank also lowered its target price from €260 to €175.

As of 04:33 AM Eastern Time (17:33 Beijing Time), SAP’s US-listed shares fell nearly 5% in pre-market trading.

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JPMorgan analysts said their previous optimism about SAP was based on “accelerating revenue growth and significant margin expansion,” but “performance has changed” as the company faces multiple headwinds.

A key concern is the slowdown in SAP’s current cloud backlog (CCB), which the bank expects will persist as the migrated customer base matures. The company’s backlog growth peaked in 2024 and has since slowed, with further deceleration expected through 2026.

An analyst team led by Toby Ogg stated in a report: “In a market now demanding acceleration to counteract the widespread software bearish sentiment, deceleration is unlikely to support recent stock performance.”

Beyond backlog trends, the team also pointed out that SAP’s business model may shift toward a consumption-based or results-based structure. While this transformation is seen as necessary, it could introduce volatility, as revenue will be more driven by usage, reducing predictability.

The analysts wrote that this shift could also “distort the traditional relationships between metrics investors currently focus on,” complicating forecasts.

Meanwhile, intensifying competition—especially at the AI agent layer—is expected to drive higher investment demand. JPMorgan noted that rapid expansion among large language model providers and increased spending among peers could pressure profit margins and lead to more M&A activity.

The analysts said: “Overall, change is rapidly approaching, and existing companies, including SAP, will need to invest and evolve to position themselves for the best chance of remaining relevant during the AI cycle.”

The bank also lowered earnings forecasts, reducing the non-GAAP EBIT and EPS estimates for 2026-2028 by single-digit percentages, reflecting a slower pace of margin expansion than previously assumed.

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