SAP Faces Near-Term Growth Pressure as Morgan Stanley Trims Target Ahead of Q1 Results
A cautious tone is emerging around SAP as it heads into first-quarter earnings, with fresh analysis pointing to slower deal momentum and rising geopolitical uncertainty.
Morgan Stanley has reduced its price target on the software giant, highlighting concerns that cloud growth may lose some pace in the months ahead.
The bank cut its target on SAP’s Frankfurt-listed shares to €190, down sharply from €220. Its U.S.-listed ADR target also dropped, now set at $222 compared with the previous $255. Despite the downgrade, the firm maintained its Overweight stance, signalling continued long-term confidence.
Cloud backlog under scrutiny
The key metric in focus is SAP’s Current Cloud Backlog (CCB), widely seen as a forward-looking gauge of revenue growth.
Morgan Stanley now expects CCB growth of 24% in constant currency during the first quarter, a slight downgrade that still reflects solid expansion but hints at emerging pressure. That projection follows an unexpected slowdown late last year, when growth cooled to the same level.
Analysts led by Adam Wood flagged geopolitical tensions in the Middle East alongside slower deal closures as factors weighing on sentiment among institutional investors.
Mixed signals across the channel
Survey data offers a nuanced picture.
Morgan Stanley’s AlphaWise poll, covering 30 SAP resellers across the U.S. and Europe, shows overall business activity picking up modestly. Growth rose to 2.2% year-on-year in the first quarter, improving on the prior quarter’s 1.1%.
Cloud subscriptions stood out, surging 8.2% — the strongest reading recorded in the survey’s history.
Yet beneath the headline numbers, feedback remains uneven. Several resellers pointed to macroeconomic uncertainty and delays in budget approvals as obstacles slowing momentum.
Longer deal cycles complicate revenue timing
Insights gathered via systems integrators reinforce that view.
Demand remains stable, but execution is becoming more complex. Large-scale transformation projects and public sector contracts are taking longer to finalise, delaying revenue recognition.
A consistent theme emerging across partners is the shift toward phased transformation deals. These arrangements spread contract value over longer periods, often pushing a larger share of revenue into later stages.
That structural shift is significant. It places short-term pressure on backlog figures as internal approval processes grow more demanding and timelines extend.
AI enthusiasm strong, adoption still lagging
Artificial intelligence remains central to SAP’s strategy, and channel sentiment is broadly supportive.
However, real-world deployment tells a different story. Many customers are still in early stages of adoption, with one integrator noting that a large portion of AI credits remains unused even in the second year.
Current buying behaviour appears driven more by securing future flexibility than immediate implementation at scale.
Long-term case intact, but clarity needed
Despite near-term headwinds, Morgan Stanley maintains a constructive long-term view.
SAP’s entrenched position in enterprise resource planning continues to underpin its investment appeal. The bank also highlights an attractive valuation, with the stock trading at roughly 1.05 times its PEG ratio.
Still, the path ahead is less straightforward. Analysts point to evolving migration strategies, increased deal complexity, and the need for a clearer commercial roadmap around AI as factors clouding short-term visibility.
Next catalyst in focus
Attention now turns to SAP’s upcoming Sapphire conference in May, expected to provide critical updates on strategy, product direction, and monetisation plans.
Investors will be watching closely for signs that growth momentum can stabilise — and that confidence in the company’s cloud trajectory can be rebuilt.