You can use windowed version of SUM function in order to determine islands of NULL valued records along with the record having the higher ID in the same group:
SELECT [Group], ID, Value,
SUM(CASE WHEN Value IS NULL THEN 0 ELSE 1 END) OVER
(PARTITION BY [Group] ORDER BY ID DESC) AS grp
FROM mytable
Output:
Group ID Value grp
-----------------------
A 4 40 1
A 3 30 2
A 2 NULL 2
A 1 NULL 2
B 4 40 1
B 3 NULL 1
B 2 20 2
B 1 10 3
You can now wrap the above query in a CTE and use another CTE to do the update:
;WITH CTE AS (
SELECT [Group], ID, Value,
SUM(CASE WHEN Value IS NULL THEN 0 ELSE 1 END) OVER
(PARTITION BY [Group] ORDER BY ID DESC) AS grp
FROM mytable
), ToUpdate AS (
SELECT [Group], ID, Value,
MAX(Value) OVER (PARTITION BY [Group], grp) AS group_value
FROM CTE
)
UPDATE ToUpdate
SET Value = group_value
WHERE Value IS NULL
Demo here
Edit:
The above query doesn't handle the edge case where the very last record within a Group slice is NULL. To handle this case as well you can use the following query:
;WITH CTE AS (
SELECT [Group], ID, Value,
SUM(CASE WHEN Value IS NULL THEN 0 ELSE 1 END) OVER
(PARTITION BY [Group] ORDER BY ID DESC) AS grp,
SUM(CASE WHEN Value IS NULL THEN 0 ELSE 1 END) OVER
(PARTITION BY [Group] ORDER BY ID) AS grp2
FROM mytable
), ToUpdate AS (
SELECT [Group], ID, Value,
MAX(Value) OVER (PARTITION BY [Group], grp) AS group_value,
MAX(Value) OVER (PARTITION BY [Group], grp2) AS group_value2
FROM CTE
)
UPDATE ToUpdate
SET Value = COALESCE(group_value, group_value2)
WHERE Value IS NULL
Demo here