In 2027, the deadline is pushing customers to speed up "cloud migration", with SAP's Q2 cloud business growing 24% beyond expectations.

German software giant SAP SE (SAP.US) announced on Thursday that, driven by customers accelerating the transition from on-premise licenses to the cloud before the company stops supporting old software, cloud business revenue in the second quarter increased by 24% year-on-year to 6.28 billion euros (approximately 7.1 billion U.S. dollars) at fixed exchange rates, exceeding the market consensus analysts' average expectation of 6.26 billion euros. For the quarter ending on June 30, this German enterprise software giant reported earnings per share of $2.15, higher than analysts' consensus expectation of $2.00. Second-quarter revenue increased by 9% year-on-year to $11.24 billion, which was in line with expectations. The current cloud backlog increased by 26% year-on-year to $26.06 billion, surpassing the market's expected increase of 23.8%. As of the time of publication, SAP's stock rose 1.8% in after-hours trading on the US stock exchange. In terms of full-year outlook, SAP expects cloud and software business revenue to be between $41.31 billion and $41.88 billion, higher than the market's widely predicted $40.9 billion. The company also expects full-year free cash flow to reach $11.38 billion. SAP's previous forecast for cloud business revenue in 2026 was between 25.8 billion and 26.2 billion euros. As the largest software company in Europe by market value, SAP is currently facing challenges from artificial intelligence technology to its traditional business model, while also pushing customers to migrate systems from on-premise installations to cloud-based solutions. This migration process is often time-consuming and costly, and the conflict in the Middle East has further increased complexity - disrupting supply chains in vital industries such as oil and gas (key customers of SAP). The window for customers to switch systems is narrowing: regular support for older software will end in 2027, after which only extended maintenance services requiring higher fees will be provided. CEO Christian Klein stated in January that political uncertainty at GEO Group Inc was slowing down cloud transaction negotiations. Klein is also focusing on the adoption of SAP's proprietary AI tools and advancing cost reductions. This year, he has announced two rounds of organizational restructuring and personally taken over the overall coordination of AI development, in order to focus on this emerging technology - but investors are concerned that AI will eventually weaken the existing moat of software companies. SAP's stock price has fallen by 38% since the beginning of the year. SAP CEO Christian Klein said, "We achieved strong growth in cloud backlog for the second consecutive quarter, increasing by 26% at fixed exchange rates. This performance is due to our 'Intelligent Enterprise' strategy, with our suite of autonomous products and commercial AI platforms showing strong growth momentum. Customers are choosing SAP to achieve precise and compliant AI applications on their most critical business processes and data foundations." SAP CFO Dominik Asam added, "Against the backdrop of ongoing macroeconomic volatility, the second quarter once again delivered strong results, with growth in cloud backlog and free cash flow. These achievements reflect our strict execution and ability to continue meeting our business goals." TD Cowen analyst Derrick Wood and others stated in a research report prior to the release of the financial report that SAP's increased focus on AI has not yet translated into actual growth, with one major customer revealing to them that SAP's AI products' contribution to orders is still "insignificant." Industry research analyst Josh Christensen believes that, due to the impact of conflicts, SAP's sales cycle has lengthened. He wrote before the performance announcement, "SAP's sales exposure to the EMEA (Europe, Middle East, and Africa) region (accounting for over 40% of revenue) is higher than other large enterprise software suppliers, making it more susceptible to the region's turbulence."