SAP NYSE: SAP reported what management described as a “strong start to the year” in the first quarter of 2026, pointing to continued momentum in cloud, rising profitability, and steady execution despite heightened geopolitical uncertainty tied largely to the conflict in the Middle East.
Cloud growth and backlog expansion
CEO Christian Klein said SAP’s current cloud backlog rose 25% year over year to EUR 21.9 billion, while cloud revenue increased 27% and approached EUR 6 billion. He added that cloud ERP suite revenue grew 30%, helping drive total revenue of EUR 9.6 billion, up 12%.
Public cloud demand was a key feature of the quarter. Klein said order entry for public cloud solutions “accelerated sharply,” with public cloud representing more than 70% of quarterly order volume. He also highlighted channel performance, noting that SAP’s partner ecosystem “performed exceptionally well,” with indirect channel order entry accounting for “almost 30%” of total order entry and growing significantly faster than direct sales.
CFO Dominik Asam cautioned that SAP still expects “a slight deceleration” in current cloud backlog growth over the coming quarters. He said that shortly after the conflict escalated, some governments and affected industries reprioritized efforts toward “immediate firefighting,” which influenced activity levels. Asam also said Q1 cloud revenue benefited from “several quarter-specific effects” that are “unlikely to reoccur,” leading SAP to expect cloud revenue growth to decelerate in Q2.
Profitability, cash flow, and the share-based compensation effect
SAP’s Q1 operating performance improved alongside top-line growth. Klein reported a 30% operating margin, up 2.9 percentage points, and said operating profit rose 24% to EUR 2.9 billion on a non-IFRS basis.
Asam provided additional detail: IFRS operating profit increased 17% to EUR 2.7 billion, while non-IFRS operating profit rose 24% to EUR 2.9 billion. He said both were supported by a EUR 135 million decline in share-based compensation expenses. Asam tied that reduction to a “28% decline in our share price during the first quarter,” referencing what he called the “SaaS apocalypse debate,” while noting that hedging covered much of SAP’s cash-settled grants but not all related effects.
Free cash flow was EUR 3.2 billion, which Asam said was impacted by a EUR 408 million payout tied to settlement of a Teradata litigation case. He also reported IFRS EPS of EUR 1.66, up 9%, and non-IFRS EPS of EUR 1.72, up 20%.
Customer wins and go-lives
Klein cited customer activity across the portfolio, particularly around RISE with SAP and data and AI offerings. He highlighted RISE selections by companies including ConocoPhillips, Thales, Air Liquide, and Bristol Myers Squibb, and said PayPal and certain automotive-related customers also began RISE journeys. He also pointed to net new GROW with SAP wins including OAKBERRY and Adesso.
In data and AI, Klein said SAP won customers such as Red Bull and Carl Zeiss, and reported that Knauf, Hochland, and SKF selected SAP Business Data Cloud.
He also listed go-lives and transformations, including Samsung Electro-Mechanics completing an S/4HANA transformation as part of RISE, and RISE transformations completed by Alibaba Cloud and Fonterra. Klein said SAP supported ExxonMobil with a SuccessFactors go-live for a workforce ecosystem project now supporting “more than 60,000 users globally.”
Business AI: progress today, scaling challenges, and Sapphire plans
Much of the call focused on SAP’s Business AI strategy and its near-term roadmap. Klein offered customer examples of SAP Business AI delivering measurable impact, including improved bid win rates at Daimler Trucks North America and productivity gains in engineering and transformation work. However, he repeatedly emphasized that broad enterprise adoption remains early and that scaling “agentic AI” reliably in mission-critical processes requires further work, particularly around business context and accuracy.
In response to analyst questions, Klein said SAP can deliver use cases today but that “85% accurate” or “90% accurate” outcomes are not sufficient for processes like payroll, finance close, or supply chain execution. He said the “last mile” is tied to ontology and the need to correlate data across SAP’s ERP footprint, referencing “7.3 million data fields” and the need for knowledge graphs to provide context for AI agents.
Klein said SAP plans “fundamental announcements” at Sapphire in Orlando, including changes intended to “infuse this deep domain know-how into SAP’s AI agents” and to govern the agentic layer for customers. He also reiterated that SAP expects the shift toward more consumption-related cloud revenue to be gradual and “by no means a disruption comparable” to the move from on-premises to cloud. Klein added that “less than 40%” of SAP’s 2025 cloud revenue was tied to named users, with the remainder priced through other metrics.
Asam addressed the potential margin implications, reiterating SAP’s view on operating leverage. He said SAP still expects total expenses to grow at “80%–90% of total revenue growth,” while emphasizing offsetting productivity benefits, including accelerated software development and feature-gap closure. He also said SAP is not incurring the same scale of investment as companies training large foundational models on unstructured data, noting SAP’s work is more structured and “very efficient” in its pre-training approach.
Outlook maintained, but uncertainty remains elevated
Asam said SAP is maintaining its full-year 2026 outlook, which assumes a near-term de-escalation of the Middle East conflict. He warned that a continued or escalating conflict—particularly a prolonged closure of the Strait of Hormuz—could “materially derail” supply chains across industries important to SAP and potentially impair the company’s ability to meet its outlook. He described the potential effect as more “binary” than incremental, saying the impact would not be a predictable basis-point drag but could become severe if supply chains shut down.
Asam also said SAP does not expect to raise its outlook “upon the imminent closing of Reltio,” adding that SAP expects to need Reltio’s contribution to maintain confidence in reaching cloud revenue guidance. When asked what was embedded in guidance, Asam pointed to Reltio’s disclosed $185 million ARR as of year-end 2025 and suggested that with roughly two-thirds of the year remaining after a near-term close, investors could infer that only a limited amount is included in SAP’s 2026 numbers.
On services revenue, Asam said SAP has made a “deliberate decision” to invest more in adoption support and is “not chasing every hour to bill,” describing a pivot that coincides with AI migration tools playing a larger role.
Klein said SAP viewed Q1 as “a very clean quarter,” adding that the company did not rely on additional incentives and did not see pressure in deal margins. He acknowledged extended deal cycles in the Middle East due to travel and customer constraints but said pipeline building for the second half was a major field focus in Q1.
On data access and platform openness, Klein said SAP would not charge customers for accessing their own data, noting the company “killed indirect access.” He differentiated between data access and monetizing SAP’s “IP” and domain know-how embedded in semantic models and ontologies. Klein also said SAP intends to provide APIs and support an open platform, while recognizing the need for API throttling in cases of heavy usage to avoid performance issues.
About SAP NYSE: SAP
SAP SE is a global enterprise software company headquartered in Walldorf, Germany. Founded in 1972 by five former IBM engineers, the company's name is an acronym for Systeme, Anwendungen und Produkte in der Datenverarbeitung (Systems, Applications & Products in Data Processing). SAP develops and sells software and services that help organizations manage business processes across finance, human resources, procurement, manufacturing, supply chain and customer relationships.
SAP's product portfolio spans on‑premises and cloud offerings, anchored by its enterprise resource planning (ERP) solutions such as SAP S/4HANA and the SAP HANA in‑memory database and platform.
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