Europe's largest software company, SAP SE, is now reaping the rewards of its cloud transformation strategy, as accelerating customer migration from traditional on-premise systems to the cloud drove a significant profit increase in the fourth quarter and prompted the company to raise its cloud revenue growth forecast for the current year. The Walldorf, Germany-based enterprise software giant reported on Thursday that its fourth-quarter adjusted operating profit surged 27% year-over-year to €2.83 billion. Full-year 2025 cloud revenue, calculated at constant currencies, reached €21.7 billion, exceeding analyst expectations. SAP now anticipates its 2026 cloud revenue, at constant currencies, will grow by at least 23%, reaching a range of €25.8 billion to €26.2 billion. According to data compiled by Bloomberg, this guidance slightly surpasses the analyst consensus estimate of €26.0 billion. Chief Executive Officer Christian Klein stated that SAP Business AI has become a primary growth driver, with two-thirds of cloud orders in the fourth quarter incorporating AI functionalities, alongside strong adoption rates for AI within the ERP suite. This announcement directly addresses market concerns that AI programming tools might negatively impact traditional enterprise software firms.

The performance of the cloud business exceeded expectations. SAP delivered fourth-quarter results that surpassed market forecasts. The full-year cloud revenue figure of €21.7 billion outperformed prior analyst predictions. The company's share price rose 0.3% to €196.14 on Wednesday; although it remains approximately 30% below the all-time high set in February of last year, SAP continues to hold its position as Germany's highest-valued company by market capitalization.

Since 2020, under Klein's leadership, SAP has pursued a strategic pivot from selling software licenses for on-premise servers to providing cloud-based software subscription services. This transformation has gained investor approval, propelling the company's stock price to record highs last year.

AI business emerges as a new growth engine. SAP is incentivizing customers to migrate from on-premise servers by offering AI-powered business applications in the cloud, where average customer spending is higher. Klein emphasized in a statement that SAP Business AI is a major growth driver, noting its inclusion in two-thirds of fourth-quarter cloud orders and robust adoption across the entire ERP suite. Amid growing demand for AI technology, software companies are increasingly focusing on AI agents capable of performing tasks with minimal human intervention. SAP's cloud backlog—reflecting sales to be recognized over the next 12 months—grew by 16% to €21.1 billion in the fourth quarter, representing a 25% increase at constant currency rates. Following previous reports from Bloomberg about the rise of AI programming tools sparking concerns over potential disruption to Europe's most valuable software company, SAP's current performance demonstrates a successful conversion of AI into tangible growth momentum.

Accelerating the push for cloud migration. To accelerate customer migration to the cloud, SAP has set a clear timeline: it will discontinue mainstream support for most of its primary on-premise product lines by the end of 2027 and eliminate extended maintenance options by 2030. The company expects the decline in software support revenue, at constant currencies, to accelerate as more clients transition to the cloud. SAP also announced a share buyback program of up to €10 billion to be completed by the end of 2027, signaling strong confidence in its future performance. This substantial repurchase plan sends a positive signal regarding management's belief in the long-term value of the cloud transformation strategy. The company is currently at a critical juncture in its business model transformation. While revenue from traditional on-premise software support is set to decline at a faster pace, cloud subscription revenue and AI business are experiencing rapid growth. Judging by the fourth-quarter results, this strategic pivot is progressing as planned and beginning to deliver substantial returns.