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SAP Misses Q3 Revenue Estimates as Cloud Growth Slows, Shares Drop

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German enterprise software giant SAP reported third-quarter revenue slightly below analyst expectations, sending its U.S.-listed shares down 3% in after-hours trading. The company posted revenue of €9.08 billion ($10.59 billion), a 7% year-on-year increase but short of the €9.17 billion forecast by analysts, according to LSEG IBES data.

SAP’s cloud business, a key growth driver, rose 22% — its slowest pace since late 2023. CFO Dominik Asam said the company “maintained forward momentum despite an uncertain macroeconomic backdrop.” SAP has been shifting from traditional software licenses to a subscription-based cloud model, seeking more stable long-term revenue streams.

Non-IFRS operating profit grew 14% to €2.57 billion, slightly above estimates, while free cash flow increased 5% to €1.27 billion. Looking ahead, SAP expects 2025 cloud revenue to reach the lower end of its forecast range (€21.6–21.9 billion), but operating profit is anticipated at the upper end (€10.3–10.6 billion). Free cash flow guidance was raised slightly to between €8 billion and €8.2 billion.

Alphabet Plans Massive Capex Increase as Cloud Revenue Growth Slows

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Alphabet (GOOGL.O) announced plans to spend $75 billion on its AI infrastructure in 2025, a 29% increase over Wall Street’s expectations. This announcement led to a 9% drop in Alphabet’s stock in after-hours trading as investors expressed disappointment with the company’s missed cloud revenue target and growing concerns over its profitability.

Alphabet’s planned capex for 2025 exceeds analysts’ expectations of $58 billion and marks a dramatic increase from the $52.5 billion spent in 2024. CEO Sundar Pichai defended this surge in investment, citing the enormous potential of the AI space and promising that the cost of AI technology would continue to decrease, making it more accessible. Despite this optimism, Alphabet reported a slowdown in its cloud revenue growth, which failed to meet projections.

The company’s cloud business saw a 30% rise in revenue, reaching $11.96 billion for the fourth quarter. However, this was a deceleration from the 35% growth in the previous quarter and missed the expected $12.16 billion. Pichai emphasized that the Gemini family of AI models would drive further growth within the cloud platform, noting that developer usage of Gemini had doubled in the last six months.

Alphabet’s capital spending is primarily focused on building servers and data centers to support its AI initiatives. The company’s cloud segment has faced heightened competition, especially from rivals like Microsoft and Amazon, with the latter set to release its quarterly results soon.

Meanwhile, Alphabet’s core advertising business, which represents around 75% of total revenue, showed positive performance, with ad revenue growing 10.6% to $72.46 billion in the fourth quarter. YouTube contributed significantly to this growth, with ad revenue increasing by 13.8%.

Alphabet’s overall revenue for the quarter rose 12% to $96.47 billion, surpassing analyst expectations, while profits came in at $2.15 per share, above the forecasted $2.13 per share.