SAP's Cloud Growth Slows as Share Price Plunges 22%

SAP's share price took a dramatic hit last week, falling 22 percent in its steepest decline since 2020, after the company revealed that its cloud backlog growth would slightly decelerate in 2026. The European ERP giant, which provides core business software for some of the world's largest industrial and manufacturing companies, posted €36.8 billion ($43.1 billion) in revenue for calendar 2025, an 8 percent increase year-over-year. However, the market reacted negatively to news that SAP's current cloud backlog—a key metric measuring how quickly the company converts on-prem customers to cloud and SaaS models—fell from 2024 to 2025 and was expected to continue decelerating.

Despite the market turmoil, SAP CEO Christian Klein remained firm on the company's strategy, refusing to introduce renewal discounts to boost short-term growth figures. Speaking to investors, Klein explained that the slowdown in cloud backlog growth was actually a result of signing larger customers to its cloud transformation deals. "Now there are these mega deals, and that will also continue, and they will take a higher share in the overall order entry of what we are converting to the cloud with RISE," Klein said, referring to the company's lift-shift-and-transform package launched five years ago.

The RISE with SAP initiative, which partners with systems integrators and cloud hyperscalers, was initially adopted by smaller and medium-sized customers. However, recent deals have involved some of SAP's biggest clients, creating a different revenue pattern. "Large customers often don't move their mission-critical ERP in the first year. These deals always have more back-end-loaded ramps and as a consequence, a limited impact on current cloud backlog in the first 12 months," Klein explained.

This strategic shift has created tension between short-term market expectations and SAP's long-term vision. The company's operating profit for Q4 2025 reached €2.554 billion, 27 percent higher than the same quarter last year, demonstrating the financial strength of its current approach. Yet the market's reaction suggests investors are concerned about the immediate trajectory of cloud growth.

SAP's stance on renewal discounts has become particularly contentious. While the company maintains its current policy, some industry analysts have raised concerns about pricing for customers opting for private cloud solutions. Last year, Gartner reported that customers who failed to negotiate renewal price caps in their original deals had seen price increases of 10 percent or more on renewal proposals. SAP pushed back against this analysis, calling it "factually incorrect."

The company's decision to maintain its renewal discount strategy despite the share price decline reflects a broader debate in enterprise software about balancing short-term growth metrics against long-term customer relationships and sustainable revenue models. SAP's cloud backlog still climbed to €77 billion, indicating substantial future revenue potential, even if the growth rate has moderated.

This situation highlights the challenges facing traditional enterprise software vendors as they navigate the transition from on-premises to cloud-based delivery models. While SAP's overall financial performance remains strong, with 8 percent revenue growth and significant operating profit increases, the market's focus on cloud backlog growth underscores how investor priorities have shifted in the SaaS era.

The coming months will test whether SAP's strategy of prioritizing larger, more complex cloud transformation deals over immediate backlog growth proves sustainable. The company's refusal to adjust its discounting policy suggests confidence in its long-term value proposition, but also risks continued market skepticism if cloud growth metrics don't improve in the near term.

For SAP's massive installed base of industrial and manufacturing customers, these developments may signal a period of pricing stability, even as the company continues its aggressive push toward cloud transformation. The question remains whether this approach will satisfy both the market's demand for growth and the company's need for sustainable, profitable expansion in an increasingly competitive enterprise software landscape.