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SAP stock jumps as Q2 revenue beats estimates on strong cloud demand

Investing.com
·2 min read

Investing.com -- SAP reported Monday fiscal second-quarter results that surpassed Wall Street estimates as its cloud business was boosted by growing enterprise demand for its artificial intelligence offering.

SAP SE ADR (NYSE:SAP) rose more than 6% in premarket trading following the results.

For the three months ended Jun. 30, SAP reported adjusted earnings of €1.10 per share on revenue of €8.29B, compared with estimates for €1.09 on revenue of €8.26B.

The beat was fueled by cloud growth momentum, which "remained strong in Q2, with Business AI enabling many deals," the company said.

Cloud and software revenue jumped 10% to €7.17B in Q2 year on year and the software maker continues to win new business, boosting its current backlog.

The current cloud backlog jumped to 28% to €14.8B.

Cloud ERP Suite revenue reached €3.41B, surpassing the consensus estimate of €3.38B, reflecting an acceleration of 33.0% growth in constant currency.

"SAP is again kicking off our earnings season with solid results and some additional company-specific tailwinds, albeit this time on margins," KeyBanc Capital Markets analysts said in a note.

"Revenue came in slightly ahead of expectations, but it was the acceleration of Cloud ERP Suite revenue and current cloud backlog growth, we'd argue the two most important line items for the story, that bulls (we) will focus on."

Citizens JMP analysts also voiced bullish comments following SAP's print, raising their target price on the stock from $220 to $245.

They view SAP as a strong opportunity for capital appreciation for a number of reasons, including its effective growth strategy with RISE converting the €11B support stream to the cloud and GROW targeting new markets. Moreover, the company's total addressable market (TAM) is expected to reach $670B by 2025 and its SAP Business AI "is accelerating the pace of innovation," with nearly 20% of Q2 deals including premium AI use cases.

JMP also highlighted SAP's revenue and cloud growth, as well as the improving profitability.

Looking ahead, the tech company reiterated its outlook for the full year, forecasting adjusted operating profit between €7.6B and €7.9B on cloud revenue in a range of €17.0B to €17.3B.

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