SAP Surges on Cloud Momentum and Strong Q1 Earnings, Reaffirms Outlook Despite Tariff Headwinds

SAP SE kicked off software earnings season with a strong first-quarter report that sent its shares up more than 8%, a sharp reversal from the stock's recent pullback. The German enterprise software giant posted a significant EPS beat, boosted by 27% year-over-year cloud revenue growth and solid margin expansion. While total revenue came in slightly light at €9.01 billion versus expectations of €9.06 billion, investors welcomed the reaffirmation of full-year guidance, particularly for its cloud business, which remains the core driver of SAP's growth strategy. Management emphasized resilience despite ongoing macroeconomic uncertainty, pointing to high visibility with 86% of revenue now recurring and a growing cloud backlog.

Cloud remains the engine of SAP's transition story. Cloud revenue hit €4.99 billion in Q1, up 27%, with Cloud ERP Suite revenue climbing 34% to €4.25 billion. SAP's cloud backlog surged 28% to €18.2 billion, a strong signal of sustained demand. Geographic strength was broad-based, with standout growth in Germany, India, Brazil, and South Korea. For software peers like Microsoft, Amazon, and Alphabet, SAP's performance sets an optimistic tone. These companies also compete heavily in cloud infrastructure and software platforms, and SAP's numbers indicate that mission-critical enterprise workloads continue to migrate to the cloud even amid global volatility. The results also align with recent commentary from Mizuho and BMO that software spending is holding up better than feared.

SAP's outlook held firm. Management maintained full-year 2025 cloud revenue guidance at €21.6-€21.9 billion, representing 26-28% growth in constant currency. Cloud and software revenue is forecast at €33.1-€33.6 billion, up 11-13%. Non-IFRS operating profit is projected to grow 26-30% to €10.3-€10.6 billion. SAP also reiterated its target of €8 billion in free cash flow, double last year’s total. Though the company acknowledged risks tied to tariffs and trade tensions, it cited strong customer sentiment and the mission-critical nature of its software as reasons to remain confident. CEO Christian Klein noted that customers are leaning on SAP to help navigate supply chain disruptions in over 130 countries, adding, "Our AI-powered portfolio enables companies to unlock efficiencies with agility and speed".

Valuation-wise, SAP remains at a premium, now trading around 41x forward earnings after the recent move. But analysts largely view the multiple as warranted given the accelerating cloud shift, improved margins, and strong FCF generation. JPMorgan, BMO, and Deutsche Bank all echoed the sentiment that SAP is showing resilience in a challenging macro backdrop, with Deutsche calling the quarter "a masterclass in resilience". For investors, the results reaffirm the strength of SAP’s cloud transformation and suggest continued upward momentum in the enterprise software sector. With SAP's analyst day on May 21 and peers like Oracle and IBM set to report in the coming weeks, the spotlight is now on whether the rest of the software space can match SAP's tone of confidence and execution.