SAP Shares Slide as UBS Cuts Rating, Citing Slow AI Agent Rollout — BigGo Finance

SAP SE (SAP) shares tumbled Wednesday after UBS downgraded the enterprise software giant from Buy to Neutral, warning that the company’s agentic AI push is moving too slowly to drive near-term revenue growth and that cloud backlog momentum is poised to fade.

Analysts led by Michael Briest raised their price target on the stock to €201 from €164, but the more cautious rating dominated investor reaction. American depositary receipts fell more than 2% in early trading, extending the stock’s year-to-date decline to roughly 13%. In German trading, shares dropped 2.4% by 07:10 GMT, and the stock was down about 4% to $210.16 by mid-session in New York.

The downgrade reflects a stark reassessment of SAP’s AI execution. The company has delivered just 17 “out-of-the-box” AI agents to date, with an additional 15 in ramp-up, according to the analysts. That leaves SAP’s stated ambition of reaching 200 agents by year-end looking increasingly unrealistic. Last year, the company set a goal of delivering more than 40 agentic AI scenarios and managed only 10.

“We continue to view SAP as a pre-eminent system of record with a deep moat around its core business,” Briest and his team wrote, “but believe the company is only delivering agentic AI into customers’ hands slowly.” The sluggish rollout, they argued, limits SAP’s near-term monetization opportunity and raises the prospect that enterprise customers will pursue do-it-yourself AI adoption instead.

The complexity of SAP’s installed base compounds the challenge. Many large customers run multiple ERP system instances across different versions, frequently hosted on private cloud infrastructure with heavy customization. That fragmented environment makes it difficult to deploy standardized AI solutions efficiently.

Cloud backlog growth, a closely watched metric for SAP’s transition to subscription revenue, is expected to decelerate in the second half. UBS estimates constant-currency backlog organic growth at 24.6% in the second quarter, up marginally from 24.2% at the end of 2025. The company has guided for a slight slowdown to around 23% for the full year, though UBS does not rule out 24% being delivered in the fourth quarter.

Margin pressures are also emerging. Cloud gross margins before stock-based compensation fell for the first time since 2021, while higher AI token costs weighed on research and development expenses. SAP trimmed its fiscal 2026 EBIT guidance by €100 million due to expected acquisition dilution.

UBS no longer expects SAP to hit its “Rule of Forty” target—combining free cash flow as a percentage of sales with sales growth—this decade, projecting 37.0% by 2030 versus a consensus estimate of 36.5%. The analysts said they prefer Amadeus IT Group in the sector.

Despite the downgrade, SAP’s second-quarter results still showed underlying strength. Current cloud backlog reached €22.9 billion, cloud revenue grew 24% at constant currency, and free cash flow came in at €3 billion. UBS maintains expectations for a 19% compound annual earnings growth rate through 2028, supported by the ongoing RISE migration initiative.

At $210.16, SAP trades nearly 20% below its GF Value estimate of $261.80, a gap that could narrow if AI execution improves. But the stock’s elevated P/E ratio of 27.86 leaves little room for disappointment.

SAP was not alone in facing selling pressure Wednesday. Zoom Communications tumbled more than 5% after issuing disappointing forward guidance. Benchmark analyst Matthew Harrigan pointed to “unanticipated slowing Online activity” as the culprit while maintaining a Buy recommendation. Intuit declined roughly 2% following its fiscal fourth-quarter results, bringing its year-to-date loss to nearly 50%. CEO Sasan Goodarzi told investors the company is resetting expectations to prioritize market share expansion.

Salesforce, Okta, and Nutanix were scheduled to report quarterly results after Wednesday’s close.

The broader software sector weakness comes as management teams flag IT spending risks that have persisted since the Gulf conflict began. UBS noted that SAP executives have raised this concern before, and the message is likely to resurface as cloud backlog growth slows in the second half.

InvestingPro data shows four analysts have recently lowered earnings projections for SAP’s coming period. Bernstein SocGen and TD Cowen both reduced their price targets following second-quarter results while maintaining constructive ratings. BMO Capital implemented a modest target increase, while Oppenheimer maintained its Perform stance.