JMP raises SAP stock price target to $375 on cloud revenue growth

SAP AG reported mixed Q2 2025 results, with non-IFRS EPS and operating profit exceeding consensus, though total revenue and key cloud revenue slightly missed estimates. Despite robust 12% constant currency revenue growth and accelerated cloud ERP growth to 34%, a slight deceleration in current cloud backlog growth to 28% prompted a 2% aftermarket stock decline, contrasting with its 24% year-to-date outperformance. Analysts like JMP Securities raised price targets while Piper Sandler maintained an Overweight rating despite some target adjustments, reflecting continued confidence in SAP's strong cloud position amidst sector-specific sales cycle challenges.

Analysis

SAP AG (SAP) presented mixed second-quarter 2025 results, characterized by strong profitability and accelerating growth in key segments, but overshadowed by slight revenue misses and a deceleration in its forward-looking backlog. The company surpassed consensus estimates on the bottom line, with non-IFRS earnings per share of €1.50 against an expected €1.45 and operating profit of €2.57 billion versus a €2.42 billion consensus. However, total revenue of €9.03 billion and cloud revenue of €5.13 billion both fell marginally short of expectations. Despite these top-line misses, underlying momentum remains robust; total revenue grew 12% year-over-year in constant currency, accelerating from 11% in the prior quarter, while the critical cloud revenue segment accelerated to 28% growth from 26%. The market's negative reaction, a 2% decline in aftermarket trading, appears primarily driven by a slight slowdown in the current cloud backlog growth to 28% in constant currency from 29% previously, a key indicator of future revenue. This short-term concern contrasts with the stock's 24% year-to-date gain and positive analyst sentiment, including a price target increase from JMP Securities to $375 and a maintained Overweight rating from Piper Sandler, who noted prolonged sales cycles in specific U.S. sectors as a potential headwind.

Key Decisions for Investors

• Investors should weigh the slight deceleration in cloud backlog growth against the accelerating core cloud revenue and strong profitability, as the market is currently focusing on the former despite fundamental strength.
• The 2% post-earnings stock decline could be viewed as a buying opportunity for those confident in the long-term cloud transition, especially given the stock's significant YTD outperformance and bullish analyst price targets.
• Monitor future commentary on sales cycle durations in the U.S. public sector and manufacturing, as this was flagged by Piper Sandler as a key risk that could impact near-term performance.
• Consider the CEO's skepticism on new AI data centers as a strategic positive, indicating a focus on capital discipline and optimizing existing resources which could support future margin expansion.