Key Moments
- JPMorgan downgraded SAP (NYSE: SAP) (ETR: SAPG) to Neutral from Overweight and cut its price target to €175 from €260.
- U.S.-listed SAP shares were down nearly 5% in premarket trading by 04:33 ET following the revised rating.
- JPMorgan trimmed non-IFRS EBIT and EPS forecasts by mid-single-digit percentages for 2026–2028, citing slower margin expansion and strategic uncertainty.
Rating and Target Price Revisions
JPMorgan shifted its stance on SAP (NYSE: SAP) (ETR: SAPG), moving the stock to a Neutral rating from Overweight. The bank also reduced its price target significantly, lowering it to €175 from €260, as it now sees a weaker near-term risk-reward profile for the enterprise software group.
By 04:33 ET, SAP’s U.S.-listed shares were trading nearly 5% lower in premarket activity, reacting to the downgrade and the more cautious outlook.
Why JPMorgan’s Bullish Thesis Has Weakened
Analysts at JPMorgan noted that their earlier positive view on SAP had been anchored in expectations for “accelerating revenue growth and significant margin expansion.” However, they said that “the picture for performance has shifted” as SAP confronts several emerging challenges.
Cloud Backlog Growth Loses Steam
A key factor behind the downgrade is the slowdown in SAP’s current cloud backlog (CCB). JPMorgan highlighted that the growth in this backlog has already peaked in 2024 and has been easing since, with additional deceleration projected through 2026 as the pool of migrated customers becomes more mature.
The analysts, led by Toby Ogg, cautioned in their note: “In a market that now demands acceleration to counter prevailing software bear arguments, deceleration is unlikely to support near-term stock performance.”
| Metric / View | Earlier Outlook | Updated Outlook |
|---|---|---|
| Investment rating on SAP | Overweight | Neutral |
| Price target | €260 | €175 |
| Cloud backlog (CCB) trend | Accelerating | Peaked in 2024, slowing into 2026 |
| Non-IFRS EBIT & EPS (2026–2028) | Higher prior expectations | Cut by mid-single-digit percentages |
Business Model Evolution Adds Volatility
JPMorgan also highlighted a possible change in SAP’s commercial approach, with the company potentially moving toward a consumption-based or outcome-based model. While the analysts consider this evolution strategically important, they warned that it could increase volatility as revenue becomes more dependent on usage patterns and less stable.
They added that such an adjustment may “skew the traditional links between metrics that investors are currently wired up for,” making it more difficult for the market to interpret the company’s key performance indicators and build reliable forecasts.
Competitive and AI-Driven Pressures
Another concern for JPMorgan is the intensifying competitive backdrop, especially in the AI agent layer. The analysts pointed to rapid growth among large language model providers and rising investment across industry peers, suggesting that SAP may need to commit additional capital to remain competitive. This could compress margins and potentially spur increased M&A activity.
They wrote: “In aggregate, change is fast approaching and incumbents, including SAP, will need to invest and evolve to give themselves the best chance of remaining relevant as the AI cycle unfolds.”
Lowered Profitability Projections
Reflecting these concerns, JPMorgan revised its financial projections for SAP. The bank reduced its non-IFRS EBIT and EPS estimates by mid-single-digit percentages for the 2026–2028 period. The adjustment is based on expectations for a slower trajectory of margin expansion than previously assumed, amid moderating cloud backlog growth, business model changes, and higher investment requirements.
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