Morgan Stanley has lowered its near-term valuation benchmarks for SAP as the German software company approaches its first-quarter earnings, pointing to external risks and structural changes in deal execution that could weigh on cloud expansion.
The Wall Street firm cut its price target for SAP shares listed in Frankfurt to 80 from 80? Correction: To 190 from 20, and reduced its target for the U.S. ADR to $222 from $255, while retaining an Overweight rating on the stock.
Central to the bank's caution is SAP's Current Cloud Backlog (CCB), a metric that tracks contracted future cloud revenue and is treated as a forward-looking indicator of growth. Morgan Stanley now models 24% constant currency CCB growth for the first quarter, down from a prior assumption of 25% - a downgrade driven in part by SAP's unexpected deceleration to that same 24% pace in the fourth quarter of 2025.
Analysts at Morgan Stanley, including Adam Wood, noted that the conflict in the Middle East and related risks to deal timing have reduced buyside expectations for the near term, increasing the possibility of deal signing delays.
The bank's quarterly AlphaWise survey of 30 SAP resellers across the U.S. and Europe delivered a mixed but instructive picture. On the quantitative side, respondents reported that overall business growth accelerated to 2.2% year-on-year in the first quarter, up from 1.1% in the fourth quarter of 2025. Cloud subscription growth showed a notable jump to 8.2%, the highest level recorded in the survey's history.
Despite those gains, the qualitative responses were less uniformly positive. Several resellers cited macroeconomic uncertainty and delays in budget approvals as sources of friction when advancing deals.
Independent channel checks with systems integrators echoed the theme of stable demand complicated by slower conversions. One 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 observation from both the reseller survey and integrator conversations was a shift toward phased transformation deals, where a greater share of contract value is pushed toward later stages. Morgan Stanley's analysts warned that this structural change "can cause near-term backlog to be impacted, as internal customer approvals are heavier and take longer to close."
On artificial intelligence, channel sentiment toward SAP's strategy was broadly positive, but uptake in the near term appears uneven. One systems integrator reported that "80% of customers still have unused AI credits in year 2," suggesting that many purchases are being made to secure optionality rather than to support immediate, large-scale AI deployments.
Despite the nearer-term headwinds, Morgan Stanley's team affirmed that SAP's long-term investment case remains intact. The analysts pointed to SAP's leading ERP position and described the company's valuation as "highly attractive" at roughly 1.05 times PEG.
At the same time, they emphasized that confidence in the durability of growth must improve. "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 said.
Morgan Stanley identified SAP's annual Sapphire conference in May as the next material catalyst for the stock.