Investing.com -- JPMorgan has downgraded SAP (NYSE: SAP) (ETR: SAPG) to Neutral from Overweight, pointing to a weaker near-term setup as growth in its cloud backlog continues to slow and new strategic shifts add uncertainty. It also reduced its price target to €175 from €260.

U.S.-listed shares in SAP fell nearly 5% in premarket trading by 04:33 ET.

JPMorgan analysts said their previous bullish stance on SAP was based on “accelerating revenue growth and significant margin expansion,” but “the picture for performance has shifted” as the company faces multiple headwinds.

A central concern is the deceleration in SAP’s current cloud backlog (CCB), which the bank expects to continue as the base of migrated customers matures. The company’s backlog growth peaked in 2024 and has since slowed, with further moderation expected into 2026.

"In a market that now demands acceleration to counter prevailing software bear arguments, deceleration is unlikely to support near-term stock performance," analysts led by Toby Ogg said in a note.

Beyond backlog trends, the team flagged a potential shift in SAP’s business model toward a consumption or outcome-based structure. This transition, while seen as necessary, could introduce volatility as revenue becomes more usage-driven and less predictable.

Such a shift may also “skew the traditional links between metrics that investors are currently wired up for,” complicating forecasting, the analysts wrote.

At the same time, intensifying competition—particularly in the AI agent layer—is expected to drive higher investment needs. JPMorgan pointed to rapid scaling by large language model providers and increasing spending across peers, adding that this could pressure margins and lead to greater M&A activity.

"In aggregate, change is fast approaching and incumbents, including SAP, will need to invest and evolve to give themselves the best chance of remaining relevant as the AI cycle unfolds," the analysts said.

The bank also lowered its earnings expectations, cutting non-IFRS EBIT and EPS estimates by mid-single-digit percentages for 2026–2028, reflecting a slower pace of margin expansion than previously assumed.