SAP SE (SAP (SAP)) shares jumped in premarket trading Friday after the German software giant reported second-quarter results that showed its cloud business is firing on all cylinders—even if the U.S. dollar numbers looked a bit messy.
Total revenue rose 9% year-over-year, or 11% at constant currencies, to €9.9 billion. Cloud revenue was the star, climbing 22% (24% at constant currencies). The company warned that growth might moderate later this year due to macroeconomic uncertainty, but investors seemed happy to focus on the cloud story for now.
In U.S. dollar terms, SAP reported earnings of $1.85 per share, below the analyst consensus of $2.01. Revenue came in at $11.48 billion, just shy of the $11.49 billion estimate but up from $10.24 billion a year ago. The miss was largely a currency story—the euro weakened against the dollar, making those European revenues look smaller in dollar terms.
Cloud Business Drives Growth
SAP's current cloud backlog—a key metric that shows future committed cloud revenue—increased 27% year-over-year (26% at constant currencies) to €22.9 billion. Cloud ERP Suite revenue rose 25% (27% at constant currencies) and now accounts for 88% of total cloud revenue.
The shift to the cloud is real: software license revenue declined 32% as customers keep migrating from old-school on-premise licenses to cloud subscriptions. That's a painful transition in the short term, but it's exactly what SAP wants.
Free cash flow hit €3 billion during the quarter. IFRS operating profit increased 8% at constant currencies to €2.6 billion, while non-IFRS operating profit rose 7% (9% at constant currencies) to €2.7 billion. IFRS earnings per share jumped 30% to €1.89, while non-IFRS EPS rose 6% to €1.59.
Cloud gross margin stood at 74.3% under IFRS and 74.6% on a non-IFRS basis, as SAP continued investing heavily in artificial intelligence and growth initiatives.
AI Expansion Continues
SAP is going all-in on AI. During the quarter, it highlighted its Autonomous Suite and Joule Work platform, saying beta programs attracted strong customer interest ahead of planned launches.
The company plans to launch nearly 50 AI assistants by the end of the third quarter of 2026 and more than 400 Autonomous Suite AI agents by year-end. It's also rolling out three ERP Migration Assistants powered by 10 AI agents to help customers modernize their enterprise systems.
SAP has been expanding its AI capabilities through investments in talent, technology, and acquisitions, including Dremio and Prior Labs. The company said its AI governance framework supports compliance across more than 130 countries through identity management, access controls, data privacy, and data sovereignty features.
SAP Outlook
SAP expects constant-currency total revenue growth in 2026 to remain broadly in line with 2025's 10.6% growth rate and to accelerate in 2027. Management said cloud backlog growth should moderate slightly this year but emphasized that long-term demand remains strong.
The company lowered its 2026 non-IFRS operating profit outlook by €100 million to reflect the dilutive impact of the Dremio and Prior Labs acquisitions. During the second half of 2026, SAP plans to focus on expanding cloud revenue, improving operating leverage, scaling AI-powered autonomous enterprise capabilities, and strengthening customer trust through governance and data sovereignty initiatives.
SAP Stock Soars Premarket
SAP shares were up 5.31% at $154.16 during premarket trading on Friday. The market seems to be looking past the dollar-based earnings miss and focusing on the cloud growth and AI story—a bet that SAP's transformation is working.
