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Investing.com -- Morgan Stanley cut its price target on SAP ahead of the German software company’s first-quarter earnings, flagging geopolitical risks and lengthening deal cycles that could weigh on its cloud growth.
The Wall Street firm lowered its price target on SAP’s Frankfurt-listed shares to €190 from €220, and its U.S. ADR target to $222 from $255, while maintaining an Overweight rating.
The main concern heading into the print is SAP’s Current Cloud Backlog (CCB) — a measure of contracted future cloud revenue that is seen as a leading indicator of growth.
Morgan Stanley now models 24% constant currency CCB growth for the first quarter, down from 25% previously, after SAP unexpectedly slowed to that rate in the fourth quarter of 2025. Analysts including Adam Wood said the Middle East conflict and potential delays to deal signings have further lowered the bar among buyside investors.
The bank’s quarterly AlphaWise survey of 30 SAP resellers in the U.S. and Europe showed overall business growth accelerating to 2.2% year-on-year in the first quarter, up from 1.1% in the fourth quarter of 2025, with a notable surge in cloud subscription growth to 8.2% — a survey-history high.
However, qualitative feedback from resellers was more mixed, the analysts noted, with some citing macro uncertainty and budget approval delays as sources of friction.
Channel checks with systems integrators painted a similar picture of stable but complicated demand. A large systems integrator told Morgan Stanley that "demand from our perspective remains solid, but sales cycles are still longer, particularly on large scale transformation and public sector. Conversion to revenue is a bit slower than expected."
A recurring theme across both the reseller survey and the systems integrator calls was the growing prevalence of phased transformation deals, in which more of the contract value is back-end loaded.
The analysts said this structural change "can cause near-term backlog to be impacted, as internal customer approvals are heavier and take longer to close."
On AI, the team pointed to broadly positive channel sentiment toward SAP’s strategy, though near-term adoption remains uneven. One systems integrator said that "80% of customers still have unused AI credits in year 2," describing current purchases as customers securing optionality for future use rather than deploying AI tools at scale today.
For the long term, Morgan Stanley analysts said SAP’s investment case remains intact, highlighting the company’s dominant ERP position and a "highly attractive" valuation at roughly 1.05 times PEG.
"However, building confidence in growth durability is critical, and in the short term, we acknowledge a more uncertain growth path, with changing migration pathways, some signs of rising complexity in deal signings, and the need for a clearer SAP product and monetisation story around AI mid-term," the analysts added.
They flagged SAP’s annual Sapphire conference in May as the next key catalyst for the stock.