IBM and SAP Report Earnings: ‘Deferral, Not Destruction’ Meets SAP’s Cloud Backlog Test
IBM promised delayed deals would close and software growth would accelerate in the second half, while SAP bet its surging cloud backlog on AI winning big contracts. Wednesday's earnings reports will reveal whether either company can actually deliver on those…
IBM (NYSE:IBM | IBM Price Prediction) and SAP (NYSE:SAP) are set to release third-quarter results on Wednesday, October 21. Jim Cramer said on October 1 that this quarter would be remembered “as the moment when software bounced back.” These two reports will test that claim.
IBM’s “Deferral, Not Destruction” Claim Gets Its Test
Second-quarter EPS of $2.93 missed the $2.97 consensus and ended a five-quarter beat run. Revenue rose just 1.1%. IBM faulted large capex deals, meaning big hardware buys that clients delayed. In a July 30 Mad Money interview, IBM CEO Arvind Krishna said about 40% of them had closed within three to four weeks, calling it “a good signal that it is a deferral, not a destruction.”
Skeptics remain, however. An investor on CNBC’s Halftime Report said on October 6 that he sold after management “lowered their guide,” citing software sales growth of only 5%, flat consulting revenue, and a 7% infrastructure fall.
Cramer supported the stock on August 24: “I think it’s doing better than people think. … I know that people hate this stock, even though I don’t think they should.” Shares trade at $236.39, down 18.9% year to date.
Watch for three things: whether the delayed deals closed, whether recurring software growth approaches the 10% second-half rate management promised, and whether the full-year revenue growth outlook of 4% to 5% holds. IBM hosts its call at 5:00 p.m. ET, according to its announcement.
Quantum computing remains the longer-term story. IBM said it expects quantum to have a measurable impact on its top and bottom lines in 2028 or 2029.
SAP’s Cloud Backlog Faces a Stress Test
The cloud backlog consists of cloud contracts that customers have signed but that SAP has not yet recognized as revenue. Investors treat it as an early look at future sales. In February, CEO Christian Klein said total cloud backlog grew 30% at constant currencies to a record €77.3 billion ($88.6 billion). SAP Business AI appeared in two-thirds of fourth-quarter cloud order entries. In April, he reported current cloud backlog growth of 25% and cloud revenue growth of 27% at constant currencies.
Current cloud backlog then grew 26% in the second quarter. Even so, management still expects “a slight deceleration” this year. The key question is whether that growth rate holds and whether AI is still winning deals. AI and Business Data Cloud appeared in more than 90% of SAP’s 50 largest second-quarter deals. Shares have risen 8.0% over the past month. Details are on SAP’s investor events page.
Wall Street’s Expectations for Both Reports
| Metric | IBM | IBM YoY | SAP | SAP YoY |
|---|---|---|---|---|
| Q3 EPS | $2.872 | 8.4% | $2.0862 | 31.2% |
| Q3 Revenue | $16.84B | 3.1% | $10.09B | 11.2% |
| FY26 EPS | $12.3114 | 6.2% | $8.1539 | 15.7% |
| FY26 Revenue | $70.38B | 4.2% | $40.27B | −4.5% |
SAP’s figures are converted from euros to dollars, so currency fluctuations may distort its year-over-year comparisons.
What Each Company Must Prove on Wednesday
IBM must show that the delayed deals turned into revenue and that its second-half growth acceleration is on track. SAP must show current cloud backlog growth holding near its second-quarter rate of 26%, with Business AI still supporting its largest deals. Strong results from both would back up Cramer’s software rebound call.
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Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.
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