SAP Holds the Ledger Agents Must Write To, and Owners Kept 7.6 Billion Euros Last Year

Owner cash after capex and all stock pay

€7,639M

Twelve months ended Sep 30, 2026, our calculation

Owner cash as a share of revenue

19.4%

Twelve months ended Sep 30, 2026, our calculation

Current cloud backlog growth

26%

Sep 30, 2026, constant currencies, company figure

1. Our call: Buy, because SAP holds the business record and turns a fifth of revenue into owner cash

Our call: Buy. SAP runs the general ledger, supply chain and payroll records that most large companies close their books on, and it is moving those customers to subscriptions without losing cash generation.

Over the twelve months ended Sep 30, 2026, operating cash flow was €9,883M, capital spending €701M and stock pay €1,543M, leaving owner cash of €7,639M, or 19.4% of €39,387M of revenue, our calculation ^[2][7]. Owner cash has been positive in each of the last five fiscal years ^[7].

Growth is set by the cloud. Cloud revenue rose 26% to €6,668M in the third quarter, the Cloud ERP Suite rose 29% to €5,924M, and current cloud backlog, the contracted cloud revenue due over the next twelve months, rose 28% to €24,144M, or 26% at constant currencies ^[2].

Total revenue grew a slower 13% because old license and support revenue is shrinking as customers move ^[2].

The question this piece answers is whether agents will route around SAP or through it. Our view is through it: an agent that pays an invoice or moves stock must write to the ledger, and spent about €2.1B this year buying data tools so agents can read and non- data together

2. SAP spends 18% of revenue on research and keeps 21% as profit

2b. SAP owns the record agents must write to, and is buying the data layer around it

SAP sells cloud subscriptions, mainly the Cloud ERP Suite, which was €5,924M of €6,668M of cloud revenue in the third quarter, plus software licenses, support for on-premise software and services ^[2]. Software support fell 5% to €2,434M as customers move to the cloud ^[2].

Two passes and two partials. SAP's strength is the record itself: if an agent posts a journal entry or releases a purchase order, the entry lands in SAP.

The weaker point is the read side, where data platforms compete, and SAP is paying to catch up.

3. Total growth is about 10%, held down by shrinking support revenue

Reported growth in euros has trailed constant-currency growth this year because of a stronger euro: nine-month cloud revenue grew 23% reported and 25% at constant currencies ^[2]. Management expects 2026 total revenue growth at constant currencies similar to 2025's 10.6%, and faster in 2027 ^[2].

Support revenue is the drag. Management expects the constant-currency decline in software support revenue to speed up, and support fell 8% over the nine months to €7,342M ^[2].

Every euro of support that moves to cloud lifts cloud growth but adds little to total revenue at first ^[2].

The 2026 outlook calls for cloud revenue toward the upper end of €25.8B to €26.2B at constant currencies, up 23% to 25%, operating profit (non-IFRS) of €11.8B to €12.2B, and about €10B of free cash flow ^[2]. Management expects constant-currency current cloud backlog growth to slow slightly from 2025's 25% ^[2].

4. The cloud backlog shows customers are committing years ahead

Total cloud backlog, which counts all contracted future cloud revenue, was €77.29B at Dec 31, 2025, up 22%, or 30% at constant currencies ^[4]. Current cloud backlog reached €24,144M at Sep 30, 2026, up 28% ^[2].

Fiscal 2025 cloud revenue of €21,020M means the twelve-month backlog alone already exceeds a full year of 2025 cloud sales, our calculation ^[2][4].

Third-quarter customers moving to the cloud on the RISE program included AstraZeneca, Banco Bilbao and Infineon Technologies, and customers choosing SAP's data products included Decathlon, Fraport and Henkel ^[2].

The product that matters most for agents is Joule Agents, which the 20-F describes as systems that plan and carry out workflows across departments while working alongside users, sitting on top of Business Data Cloud ^[1]. SAP does not disclose revenue or customer counts for Joule Agents, so we judge the effort by the backlog and by what SAP is spending to support it

5. Cloud margins are slipping a little as the mix shifts

Cloud gross margin was 73.9% in the third quarter, down from 74.6%, and total gross margin fell to 73.1% from 73.5% ^[2]. Cost of cloud rose 29% while cloud revenue rose 26% ^[2].

The 20-F notes prepayments to hyperscalers, the outside cloud providers that host part of SAP's service ^[1].

Operating margin still rose. IFRS operating profit grew 18% to €2,930M, a 28.5% margin, against 27.4% a year earlier, helped by €0.1B of one-off charges in the prior-year quarter from a tax case and a workforce transformation ^[2].

6. Owners kept €7,639M after capex and all stock pay

Capital spending is purchases of intangible assets and property, plant and equipment, which covers capitalized software ^[7]. Stock pay is the full share-based payment expense ^[7].

Part of it is cash-settled and already paid inside operating cash flow, so deducting all of it is conservative: in fiscal 2025, €364M of the €1,695M was cash-settled ^[7].

Fiscal 2024 was low because SAP paid €2.5B of restructuring costs, against €0.8B in 2025 ^[1]. Stock pay fell to 15.6% of operating cash flow over the twelve months from 45.8% in fiscal 2024, our calculation, partly because SAP's own share value fell this year, which lowers the expense on cash-settled awards ^[2]

7. Three data purchases cost about €2.1B this year

SAP bought Reltio, a master data management company, for $1,259M (€1,076M), closing May 7, 2026; Dremio, an open data lakehouse, for about €515M, closing Jul 6; and Prior Labs, which builds models for table-shaped business data, for about €518M, closing Jul 16 ^[2]. Together they cost about €2,109M, our calculation ^[2].

All three lose money for now. In the third quarter they added €49M of revenue and reduced IFRS operating profit by €59M ^[2].

Goodwill rose to €31,216M at Sep 30, 2026 from €29,015M at Dec 31, 2025 ^[2].

8. Regulators, a past lawsuit and leadership turnover are the main risks

Risks. Competition law: in September 2025 the European Commission opened formal proceedings into SAP's on-premise maintenance and support policies; SAP proposed remedies that were pending final approval in 2026 and expects no material financial effect ^[1].

Litigation: SAP settled the Teradata dispute and paid $480M (€408M) in March 2026 ^[2]. Leadership: product head Muhammad Alam is not renewing his contract, and parts of his area moved to the CEO on an interim basis ^[3].

Growth quality: the third-quarter cloud catch-up will not recur ^[2].

Catalysts: fourth quarter and full-year 2026 results, expected in late January 2027 (unconfirmed; last year's fourth quarter statement was filed Feb 3, 2026) ^[4]; the 2027 outlook, where management has said total revenue growth should accelerate

9. Five positive years support a base value, and payouts now lean on borrowing

Owner cash has been positive for five straight years, ranging from €2,025M to €6,722M a year and €7,639M over the latest twelve months ^[2][7]. That record meets our standard for valuing the business on owner cash, and the 2026 free cash flow guide of about €10B, which is before stock pay, is consistent with it ^[2].

Financial liabilities exceed cash by €1,224M, our calculation, after SAP raised €4,663M of new borrowing in the nine months ^[2]. That is small against twelve-month owner cash, but the direction is worth tracking while buybacks run ahead of cash flow ^[2].

10. Agents need the ledger, and SAP holds it

Tailwind. An agent that books revenue, pays a supplier or changes a production plan has to write that action into a system of record, and for many large companies that system is SAP ^[1][2].

Each customer moved to the Cloud ERP Suite becomes a subscription SAP controls and updates, which is why Cloud ERP Suite revenue grew 29% in the quarter ^[2].

The risk to this view is that agents work against data copied out of SAP into other platforms. SAP's answer is to bring that copy inside its own Business Data Cloud, which is what the three acquisitions buy ^[2].

If customers keep their analytical copies elsewhere, SAP keeps the ledger but loses the read side.

11. A long-serving CEO, a new product structure, and holders mostly supportive

Christian Klein has been on the Executive Board since 2018 and sole CEO since Apr 20, 2020; his term runs to 2030 ^[1]. Dominik Asam has been CFO since March 2023, after the same role at Airbus ^[1].

Thomas Saueressig became Chief Customer Officer on Apr 1, 2026, leading a new Customer Value Group ^[3]. Sebastian Steinhaeuser is Chief Operating Officer, and Gina Vargiu-Breuer is Chief People Officer and Labor Director, with her contract extended to Jan 31, 2030 ^[1][3].

Changes by 6-K. On Mar 2, 2026 SAP said Muhammad Alam, head of Product and Engineering, will not renew his contract and will stay until his term ends in 2027 ^[3].

From Jul 1, 2026, parts of his organization moved to Klein on an interim basis, with two new teams for the technology platform and an autonomous suite reporting to the CEO ^[3]. At the May 5, 2026 meeting, Gerhard Oswald and Gunnar Wiedenfels left the Supervisory Board and René Obermann and Michael Gregoire joined

12. The questions we would ask management, and the calls we are tracking

Question one: how much of third-quarter cloud growth came from the catch-up with customers returning from financial distress?

Question two: why fund buybacks with new borrowing when owner cash already covers dividends?

Question three: who will lead Product and Engineering after Muhammad Alam, and when?

Question four: what share of cloud revenue now comes from Business Data Cloud and agent tools, and how is it priced?

Question five: what cloud gross margin should owners expect as hyperscaler hosting grows? That answer sets our conviction.

Prediction one: 2026 cloud revenue lands at or above €26.0B at constant currencies (65%).

Prediction two: 2026 free cash flow is at least €9.8B (70%).

Prediction three: SAP names a permanent head of Product and Engineering to the Executive Board by Jun 30, 2027 (55%).

Prediction four: twelve-month owner cash stays above €6,000M through Jun 30, 2027 (80%).

Prediction five: the European Commission accepts SAP's maintenance remedies by Jun 30, 2027 (60%).

Filing notes. Total stock pay in the cash flow reconciliation includes cash-settled awards that are also paid inside operating cash flow, so our owner cash deducts some of it twice ^[7].

Bottom line: SAP holds the record agents must write to, and pays owners for it

SAP's ledger is where agent actions have to land, and customers are committing to it for years, with current cloud backlog up 26% at constant currencies. Owners kept €7,639M over the latest twelve months after capex and all stock pay, and owner cash has been positive in each of the last five years.

The risks are buybacks funded partly with debt, a product leadership gap and a one-off boost to third-quarter cloud growth. We would move to Hold off if constant-currency current cloud backlog growth falls below 20%, or if twelve-month owner cash falls below €6,000M.

Our call: Buy, conviction 4 of 5.