German software giant SAP SE (SAP) reported second-quarter cloud revenue growth that exceeded market expectations, driven by the impending expiration of support for its traditional software, while the company also modestly raised its full-year adjusted operating profit guidance.

According to SAP’s second-quarter 2026 earnings report released after the U.S. market close on July 23, cloud revenue grew 24% year-over-year on a constant currency basis to €6.28 billion (approximately $7.1 billion), slightly above the Bloomberg-compiled analyst consensus estimate of €6.26 billion. The performance underscores how enterprise customers are being forced to accelerate their migration to the cloud as the 2027 end-of-regular-support deadline for traditional on-premise software approaches.

The earnings report showed SAP’s total second-quarter revenue reached €9.88 billion (approximately $11.24 billion), also surpassing analyst expectations of €9.85 billion. Non-IFRS operating profit on a constant currency basis rose 9% year-over-year to €2.81 billion (approximately $3.2 billion). At quarter-end, SAP’s current cloud backlog stood at €22.9 billion (approximately $26.05 billion), up 26% on a constant currency basis.

CEO Christian Klein stated in the earnings release: “This performance is underpinned by our Autonomous Enterprise strategy, with our autonomous suite and Business AI Platform maintaining strong momentum. Customers choose SAP to achieve accurate and compliant AI outcomes built on their most critical business processes and data.”

Full-Year Profit Guidance Raised, Reflecting Recent Acquisitions

Based on the second-quarter performance, SAP slightly raised its full-year 2026 adjusted operating profit guidance. The company now expects full-year Non-IFRS operating profit on a constant currency basis to be between €11.9 billion and €12.3 billion (approximately $13.54 billion to approximately $13.99 billion), compared to the previous guidance range of €11.8 billion to €12.2 billion.

The guidance increase primarily reflects the dilutive impact of two acquisitions completed earlier this month. SAP acquired Dremio, a high-performance data lakehouse platform, and Prior Labs, a startup focused on developing an AI architecture called Tabular Foundation Models.

For full-year cloud revenue, SAP maintained its previous forecast of €25.8 billion to €26.2 billion. The second-quarter figures indicate the company is on track to meet this annual target.

Deadline Pressure Serves as Growth Catalyst

A key backdrop to SAP’s better-than-expected cloud growth is the scheduled end of regular support services for its traditional on-premise software in 2027. After that date, customers wishing to continue receiving maintenance services will have to pay higher fees. This clear time pressure is compelling an increasing number of enterprises to accelerate their migration to cloud-based systems.

However, the migration process itself is typically time-consuming and costly. Bloomberg Intelligence analyst Josh Christensen noted before the earnings release that ongoing geopolitical conflicts in the Middle East have disrupted supply chains in the oil and gas industry and other sectors deeply tied to SAP, extending negotiation cycles for related deals to some extent.

Christensen also highlighted that over 40% of SAP’s revenue comes from Europe, the Middle East, and Africa—a relatively concentrated exposure to this region among large enterprise software vendors—making the company more susceptible to direct impacts from regional instability. CEO Christian Klein acknowledged in January that geopolitical uncertainty was slowing cloud contract negotiations.

AI Investment Yet to Translate into Substantive Revenue

Despite SAP’s significant resource allocation to artificial intelligence, these initiatives have yet to translate into substantive business growth. Klein has led two rounds of organizational restructuring this year and personally taken charge of advancing AI business development, launching platforms such as Joule and Business AI in an effort to secure a favorable position in the emerging technology race.

However, according to Bloomberg, TD Cowen analyst Derrick Wood and colleagues cited feedback from a major customer in a research note prior to the earnings release, indicating that SAP’s AI products make a “negligible” contribution to its contract signings. Market analysis suggests that the continued ramp-up in AI investment has yet to generate significant incremental revenue, and investor concerns that artificial intelligence could undermine traditional software business models remain unresolved.

SAP’s earnings come as software stocks on both sides of the Atlantic are under significant pressure from AI. Investors worry that generative AI models and autonomous agent tools will soon be capable of performing many operations currently offered by software companies, such as coding, data analysis, and process automation.

Against this backdrop, market capital flows have shown notable divergence. The Philadelphia Semiconductor Index, a key barometer for U.S. chip stocks, has surged 74.3% year-to-date, while the iShares Expanded Tech-Software Sector ETF, which tracks U.S. software industry stocks, has fallen 17.5% over the same period. SAP’s U.S.-listed shares have declined nearly 40% year-to-date, but rose 4.5% in after-hours trading following the second-quarter earnings release.