Cloud transformation enters the delivery phase; SAP’s adjusted operating profit in the fourth quarter increased by 27% year-on-year, and the company has raised its 2026 cloud revenue growth guidance.

Cloud transformation enters the delivery phase; SAP’s adjusted operating profit in the fourth quarter increased by 27% year-on-year, and the company has raised its 2026 cloud revenue growth guidance.

The cloud transformation strategy of SAP, Europe’s largest software company, has entered its performance realization period. Driven by customers accelerating the migration from traditional on-premise systems to the cloud, the company’s fourth-quarter profits surged, and it raised its forecast for cloud revenue growth this year.

The enterprise software giant, headquartered in Walldorf, Germany, announced on Thursday that its adjusted operating profit for the fourth quarter grew by 27% year-on-year to €2.83 billion. Full-year cloud revenue for 2025, calculated at constant currency, reached €21.7 billion, exceeding analyst expectations.

SAP expects cloud revenue in 2026, at constant currency, to grow by at least 23%, reaching between €25.8 billion and €26.2 billion. According to data compiled by Bloomberg, this guidance is slightly above analysts’ average expectation of €26 billion.

CEO Christian Klein stated, SAP Business AI has become the main driver of growth, with two-thirds of cloud orders in the fourth quarter containing AI business, and AI adoption in the ERP suite is strong. This statement responds to market concerns that AI programming tools could impact traditional enterprise software companies.

Cloud Business Outperforms Expectations

SAP delivered better-than-expected results in the fourth quarter. The annual performance of cloud revenue at €21.7 billion exceeded analysts’ previous forecasts. The company’s stock price rose 0.3% to €196.14 on Wednesday. Although it still declined by 30% from its historic high set in February last year, SAP remains the most valuable company in Germany by market capitalization.

Since 2020, Klein has led SAP’s strategic transformation from selling software licenses for customers to run on local servers, to providing cloud software subscription services. This transformation has been recognized by investors, helping the company’s stock price reach record highs last year.

AI Business Becomes New Growth Engine

SAP is encouraging customers to migrate from on-premise servers by offering AI business applications in the cloud, where average spending per customer is higher. In a statement, Klein emphasized that SAP Business AI has become the main growth driver, being included in two-thirds of cloud orders in the fourth quarter, while the adoption rate of AI across the entire ERP suite is strong.

As demand for AI technology grows, software companies are increasingly focusing on AI agents that can complete tasks with minimal human intervention. SAP’s cloud business backlog (reflecting sales to be recognized over the next 12 months) grew by 16% in the fourth quarter to €21.1 billion, up 25% at constant currency.

According to Bloomberg’s previous reports, the rise of AI programming tools had sparked market concerns that Europe’s most valuable software company could be affected, but SAP’s current performance shows it is successfully turning AI into a growth driver.

Accelerating Cloud Migration

To promote customers’ migration to the cloud, SAP has set a clear timetable: it will end most support for its main on-premise product line by the end of 2027 and remove extended maintenance options by 2030. The company anticipates that, as more customers shift to the cloud, on-premise software support revenue will decline faster on a constant currency basis.

SAP also announced it will buy back up to €10 billion of shares by the end of 2027, reflecting its confidence in future performance. This large-scale buyback signals management’s positive outlook on the long-term value of the cloud transformation strategy.

The company is currently at a critical juncture in its business model transformation: on one hand, traditional on-premise software support revenues will decline faster, while on the other, cloud subscription and AI business are growing rapidly. Based on the fourth-quarter results, this transformation is progressing as planned and is starting to fully pay off.

Risk disclaimer and exemption clauseThe market has risks; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their specific circumstances. Investing accordingly is at your own risk.