German software company SAP saw its shares plummet by 15% on Thursday after announcing a disappointing forecast for cloud revenue in 2026, marking the steepest decline in a single day since October 2020. This unfortunate turn of events comes despite the company’s full-year performance aligning with analysts’ predictions.
JPMorgan highlighted that SAP’s cloud backlog and revenue guidance for 2026 fell short of market expectations, triggering a selloff. The company now anticipates cloud revenue growth of 23% to 25% in 2026, yet the pace of current cloud backlog growth is expected to decelerate following a robust 25% increase in 2025. SAP’s Chief Financial Officer, Dominik Asam, acknowledged the magnitude of this slowdown, attributing it to customers engaging in larger, more time-intensive projects and a rising demand for sovereign cloud services spurred by geopolitical tensions. These government and defense deals often come with longer sales cycles and may not reflect in backlog figures due to specific clauses.
Analysts noted a broader sentiment of caution within the software sector, with Oddo BHF’s Nicolas David stating that the significant decline in SAP shares reflects an overall distrust of software companies as investors shift focus toward semiconductors. David emphasized the critical nature of projections in the current market climate, where even minor missteps can have substantial consequences.
Despite the forecast setback, SAP reported a thriving full-year performance, with cloud revenue surging 26% at constant currencies to reach 21 billion euros and a total cloud backlog climbing 30% to 77.3 billion euros. CEO Christian Klein indicated confidence in the company’s technological advancements, mentioning that SAP Business AI has emerged as a key growth driver, accounting for two-thirds of the cloud order entries in the fourth quarter.
Additionally, SAP announced a two-year share buyback program worth up to 10 billion euros, which is expected to bolster investor confidence. The company has made significant strides in transitioning legacy database customers to cloud-based solutions and has conducted a comprehensive 3.2 billion euro restructuring initiative. Major successes in securing customer contracts during the fourth quarter included companies such as Dexco, Lockheed Martin, and Rolls-Royce, showcasing SAP’s continued relevance and potential for recovery despite current challenges.