SAP has thrown down the gauntlet in the race for enterprise AI, completing its acquisition of Prior Labs on July 17 with a commitment to invest over €1 billion over four years. But the announcement did little to steady a stock that has lost nearly a third of its value this year, as investors turn their attention to the upcoming second-quarter earnings report on July 23 for evidence that the strategy is paying off.
Shares of the Walldorf-based software giant closed at €138.22 on Friday, down 2.01% on a day when the Nasdaq slipped roughly 1% amid a broader technology sell-off. That leaves the stock just 5.7% above its 52-week low of €130.80, set in late June, and well below both its 50-day moving average of €144.71 and its 200-day average – a full 20% under the longer-term trend line. The year-to-date decline now stands at 31.57%.
An Autonomous AI Lab Under SAP’s Roof
The Prior Labs deal is structured unusually. The young company – founded only about 18 months ago – will retain its own brand, leadership, and research agenda, operating as a largely independent frontier-AI lab within the SAP group. Its core product, a model called TabPFN, is already deployed by Hitachi and TD Bank. An advanced version, TabPFN-3-Thinking, is said to be the current class leader for tabular foundation models (TFMs) – specialized AI models that crunch the structured, row-and-column data that dominates enterprise systems.
SAP’s broader acquisition spree includes the closing of Dremio on July 6 and the addition of Reltio to its portfolio, while a €3.5 billion Eurobond placed in late May provided additional capital-market firepower. The timing is no accident. Industry estimates peg the market for AI-powered enterprise software at just €5.8 billion in 2025, but it is expected to explode to over €58 billion by 2035. That explosive growth is luring rivals such as Oracle with its NetSuite Next and a host of specialized vendors building AI tools directly for SAP’s own ECC and S/4HANA systems.
Should investors sell immediately? Or is it worth buying SAP?
The Earnings Stress Test
With the Prior Labs announcement now in the rearview mirror, the immediate catalyst for the stock is the quarterly report due July 23. The bull case hinges on SAP’s cloud momentum: first-quarter cloud revenue grew 19% (27% in constant currency), and management has reaffirmed full-year cloud revenue guidance of €25.8 billion to €26.2 billion. Strategic bets on the Joule AI assistant and the Business AI Platform are expected to automate processes and deepen customer relationships. Additionally, the European Commission’s closure of its probe into SAP’s on-premise maintenance policies removes a regulatory overhang, giving the legacy business more stability.
On the bearish side, analysts warn of margin compression in the second half of 2026, driven by rising hardware costs and heavy spending on AI infrastructure. The recent acquisitions could dilute earnings in the near term rather than boost them immediately. Competition remains fierce, and usage-based pricing for new AI tools has met resistance from some customers. Internal friction – from data readiness gaps to staff retraining needs and possible leadership departures as the AI roadmap accelerates – adds further risk, as do tighter IT budgets amid macroeconomic uncertainty.
A Critical Support Level in Sight
For now, the stock’s trajectory hinges on whether SAP can demonstrate that its cloud and AI investments are translating into user growth and sustained revenue acceleration. A strong showing on July 23 could arrest the slide and prompt a re-evaluation of the beaten-down shares. Analysts, many of whom remain positive after the correction, see the current valuation as increasingly attractive. But if the report reveals softening cloud growth or cost overruns, the recent low of €130.80 will be the line in the sand that investors watch closely.
The Prior Labs acquisition is a bold strategic move, but its contribution to SAP’s portfolio will take quarters to materialize. In the short term, all eyes are on the numbers that land next week.
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