UBS has downgraded SAP’s stock rating to Neutral from Buy, citing concerns over the pace of its artificial intelligence rollout and the complexity of its customer base. The Swiss bank raised its price target to €201 from €164, reflecting a more conservative valuation despite the rating cut.
The downgrade follows UBS’s assessment that SAP’s delivery of AI agents has lagged expectations, with only 17 out-of-the-box agents deployed to date and just 15 additional agents in the ramp-up phase. The bank noted that SAP aims to deliver 200 agents by year-end, a target UBS described as ambitious given the challenges posed by its large and heterogeneous enterprise resource planning (ERP) customer base. Many of these customers operate multiple ERP instances across different versions, often on private clouds with custom coding that limits system visibility.
UBS also highlighted structural headwinds affecting SAP’s near-term performance. The bank expects cloud backlog growth to decelerate in the second half of the year, while free cash flow upside against guidance appears less likely compared to the prior two years. UBS attributed this partly to the utilization of migration credits, which is weighing on cash flow generation.
Despite these concerns, UBS maintained a positive long-term earnings outlook for SAP, forecasting a 19% compound annual growth rate through 2028, supported by the ongoing RISE migration cycle. The bank noted that SAP’s second-quarter cloud growth of 24% aligned with expectations, though current cloud backlog growth of 26% exceeded forecasts. SAP is trading at a P/E ratio of 27.86, which UBS described as elevated relative to near-term earnings growth prospects.
The rating change comes amid a broader review of SAP’s AI strategy, with UBS joining a cohort of analysts including Bernstein SocGen, TD Cowen, KeyBanc, BMO Capital, and Oppenheimer in adjusting their outlooks. Industry data from IDC underscores the competitive pressure in the ERP market, where SAP faces rivals such as Siemens Energy and Sandisk in adjacent segments.
