SAP downgraded to hold after 36% rally; strong cloud growth but valuation limits upside

SAP's stock rating was downgraded from strong buy to hold following a 36% price rally over two months. The company reported a 24% increase in cloud revenue and a 27% rise in backlog, driven by AI and cloud initiatives securing major deals. SAP's cloud gross margin remains strong at 74.6%, supporting profitability and solid free cash flow. However, the forward price-to-earnings ratio has risen to 25.5x, limiting further upside potential. The analyst plans to wait for a price pullback or faster earnings growth before increasing their position.