Earnings from SAP, ServiceNow, and IBM challenge the SaaSpocalypse narrative

The first wave of quarterly earnings from major enterprise software vendors suggests that while AI is beginning to reshape enterprise technology spending, it has yet to produce the sharp decline in software demand that some industry observers have dubbed the “SaaSpocalypse.”

The latest results (Q2) from ServiceNow, SAP, and IBM, read against several prior quarters, showed continued growth in cloud and software businesses, though IBM reported that some software transactions slipped as customers prioritized spending on AI infrastructure instead.

Executives at all three companies said enterprises continue to invest in core software platforms while embedding AI capabilities into those environments.

SAP addressed the debate directly during its earnings call.

“While there has been… massive noise around the alleged SaaS apocalypse over the last quarters, the underlying trajectory of our business remains fully intact,” CFO Dominik Asam said, citing continued growth in SAP’s cloud backlog.

Enterprise software demand continues

ServiceNow’s subscription revenue growth has risen for five straight quarters, from a low of 19% in early 2025 to 23% in constant currency in the quarter reported July 22, according to the company’s earnings releases.

Current remaining performance obligations grew 21.5%, AI annual contract value exceeded $1 billion for the first time, and the company’s renewal rate held at 98%, executives said during the company’s earnings call.

Similarly, SAP reported 24% cloud revenue growth, 26% growth in current cloud backlog and 27% growth in Cloud ERP Suite revenue. Its cloud revenue has remained in a narrow band of 25% to 27% growth at constant currency for four straight quarters. SAP’s CEO Christian Klein said AI and SAP Business Data Cloud were included in more than 90% of the company’s 50 largest customer deals during the quarter, while Asam said SaaS and platform-as-a-service revenue continued to grow “far above the overall market.”

IBM’s software revenue growth, however, decelerated the sharpest of the three, slowing to 5% after peaking at 14% in the fourth quarter of 2025. That softness traced to one product line: Transaction Processing revenue, the license-based software tied to IBM’s Z mainframe line, fell during the quarter, while Data revenue grew 19% and Hybrid Cloud, which includes Red Hat, grew 11%, the company said in its Q2 results statement.

“The vast majority of our software business, about 80% of that revenue, is recurring in nature and delivered healthy growth in the quarter, reflecting the demand for our offerings and giving us confidence in our growth opportunity,” IBM CEO Arvind Krishna said during the earnings analyst call.

The earnings also showed increasing adoption of AI capabilities within existing enterprise software platforms.

ServiceNow said the number of customers with agentic AI in production increased ninefold over the past nine months. Its CEO Bill McDermott said the percentage of renewal customers purchasing agentic AI for the first time doubled both sequentially and year over year.

“When will customer deployment of AI mark an inflection point for ServiceNow’s growth? Here’s the answer. It already has,” McDermott said during the analyst call.

SAP said customer demand for its autonomous enterprise strategy expanded following its Sapphire conference, while beta programs for Business AI Platform and Joule Work were oversubscribed shortly after launch.

The earnings, however, do not necessarily mean enterprise software consumption is unchanged, according to George Brocklehurst, managing vice president at Gartner.

“The market should not confuse stable SaaS revenue with stable SaaS business models,” Brocklehurst said. “Agentic AI changes how value is consumed, and that transition can begin well before it becomes visible in aggregate revenue numbers.”

AI changes enterprise buying patterns

IBM’s earnings offered an early indication of how AI infrastructure investments are beginning to influence enterprise purchasing decisions.

The company’s chief financial officer Jim Kavanaugh said some customers redirected spending toward servers, storage and memory to secure AI infrastructure, delaying enterprise licence agreements that are typically treated as capital expenditure. Subscription and consumption-based software, which customers generally classify as operating expenditure, continued to perform well, he said during the call.

Krishna said IBM expects long-term enterprise value to shift toward software that orchestrates AI models, governs enterprise data and manages AI deployments across hybrid environments rather than toward foundation models themselves.

Sanchit Vir Gogia, founder and chief analyst at Greyhound Research, said IBM’s quarter illustrates changing technology spending priorities rather than a broad decline in enterprise software demand.

“Infrastructure spending is growing several times faster, yet software expenditure keeps rising,” Gogia said. “The sharper reallocation is happening inside the application estate itself. Strategic systems of record are being protected. Duplicate copilots, marginal point tools and unused licences are being challenged.”

Gogia said traditional SaaS metrics such as backlog and renewal rates should be interpreted alongside measures of AI adoption and software utilization because they reflect contractual commitments rather than how enterprises ultimately consume software.

“Strong backlog proves commitment rather than fresh demand, and a 98% renewal rate does not reveal what was conceded to win it,” he said. “The decisive measure is no longer how many people log into software; it is how much governed work the software completes.”

Brocklehurst said the industry’s transition is likely to unfold over several years rather than through a sudden collapse in enterprise software demand.

“The ‘SaaSpocalypse’ will not begin when enterprises stop buying software,” he said. “It will begin when enterprises stop paying for access and start paying for execution.”