SAP (NYSE:SAP) executives used the company’s fourth-quarter and full-year 2025 earnings call to emphasize accelerating demand for its cloud transformation offerings and increasing customer interest in embedded artificial intelligence, while also addressing investor concerns about slower-than-expected growth in current cloud backlog (CCB).
AI adoption featured prominently in Q4 deal activity
CEO Christian Klein said customer conversations in Q4 and at the World Economic Forum highlighted a desire to use AI to improve resilience and productivity amid geopolitical and macroeconomic uncertainty. Klein argued that enterprise AI value depends on embedding AI agents into business processes and training them with “context-rich business data,” positioning SAP’s suite and data access as a differentiator.
In the Q&A, Klein provided additional adoption metrics, saying around 60% of SAP’s cloud customers are already using SAP’s AI actively and another 20% are “on the way to it.” He also described examples of customers seeking better outcomes by combining large language models with SAP’s business context and data, and said SAP was “winning deals because of AI” rather than losing them.
Bookings and backlog: record total cloud backlog, slower CCB growth
Klein described Q4 as SAP’s “best bookings quarter of 2025,” ahead of expectations, resulting in a total cloud backlog of €77 billion, up 30%. However, he acknowledged that current cloud backlog grew 25% in Q4, compared with an expectation of 26% communicated in October.
Klein and CFO Dominik Asam attributed the CCB outcome to deal mix rather than weaker demand. They said SAP closed a higher share of very large deals in Q4, which tend to have “back-end loaded ramps” and therefore contribute less to CCB in the first 12 months. They also pointed to a higher share of government deals that include termination-for-convenience clauses, which are not reflected in CCB.
Asam added that mounting geopolitical tensions have increased customer interest in sovereign SaaS options, which can lengthen negotiation, deployment, and ramp timelines compared with standard offerings. Klein said sovereign cloud discussions are taking longer due to regulatory and geopolitical questions, but he framed the trend as a competitive opportunity rather than a demand issue.
Management cited a number of Q4 wins for its cloud transformation offerings. Klein said adidas, L’Oréal, and HMM Group are embarking on RISE with SAP, while Deloitte, Pirelli, RTX, Nokia, Jabil, and the U.S. Navy also chose RISE. Toyota and Daimler Truck expanded ongoing RISE projects, and Lockheed Martin went live with one business area. Klein also said KPMG, Snowflake, and Müller selected GROW with SAP, and highlighted additional Business AI customers including Tech Mahindra, Mondelēz, Kirin, Sun Chemical, Fresenius, and Bosch.
Full-year financial results and profitability drivers
Asam said cloud revenue grew 26% year-over-year in 2025, driven primarily by Cloud ERP Suite, which increased 32% in 2025. He noted Cloud ERP Suite accounted for 86% of total cloud revenue for the year. Software licenses revenue decreased 27%, and total revenue for the full year approached €37 billion, up 11%.
On margins, Asam said non-IFRS cloud gross margin expanded 1.6 percentage points to 75% for the full year, driving cloud gross profit up 29%. For the fourth quarter, IFRS operating profit increased 27% to €2.6 billion, while non-IFRS operating profit was up 21%. Both IFRS and non-IFRS operating profit growth were negatively impacted by approximately €100 million related to a 2025 workforce transformation. Asam also said IFRS operating profit growth was negatively impacted by $200 million related to Teradata litigation expenses.
For the full year, SAP reported IFRS operating profit of €9.8 billion and non-IFRS operating profit of €10.4 billion. The IFRS effective tax rate was 28.5%, while the non-IFRS tax rate was 30.4%, which Asam said was below SAP’s prior outlook of approximately 32% due mainly to improved ability to offset foreign withholding taxes in Germany. He said SAP expects its midterm non-IFRS effective tax rate to be 28% to 30%.
Cash flow, capital returns, and 2026 outlook
Asam said free cash flow for 2025 was around €8.2 billion, at the high end of SAP’s revised outlook range of €8.0 billion to €8.2 billion, citing higher profitability and lower payments for restructuring share-based compensation. He also announced a new two-year share repurchase program of up to €10 billion scheduled to start in February, which he said reflects confidence in the business and a commitment to disciplined capital returns.
Looking ahead, Asam said SAP expects CCB growth to “moderate slightly” over the course of 2026, with deceleration anticipated to be “meaningfully less” than what was seen in 2025. He also said SAP expects to generate “a record free cash flow of approximately €10 billion” in 2026, supported by continued efficiency improvements and operational rigor.
In the Q&A, SAP executives reiterated that Q4’s CCB miss versus October expectations was driven primarily by a shift toward larger deals with later ramps and by public-sector deal structures excluded from CCB, while noting that bookings and churn were better than expected and discount rates were stable. Klein also said SAP’s pipeline coverage entering 2026 was better than at the start of 2025 and that the company does not expect a CCB decline in 2026 comparable to the roughly four-point decline seen last year.
Internal AI-driven efficiency initiative
Klein said SAP is pursuing internal AI-driven efficiencies and set a goal to reach a run rate of around €2 billion in “real cost efficiencies” by the end of 2028, equating to 15% to 20% of addressable costs, with savings intended to be reinvested into the AI roadmap. In response to analyst questions, Klein said SAP does not have a new restructuring plan tied to this target “as of today,” describing the approach as scaling the business while growing costs and headcount under-proportionally.
Klein also said SAP has already shifted AI talent toward building foundational AI capabilities and agents, and noted that SAP has automated 35% of code generation, a figure he said should increase significantly.
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.
