Investing.com -- Shares of SAP (ETR: SAPG) (NYSE: SAP) dipped about 4% on Wednesday after Goldman Sachs trimmed its margin forecasts for the German software giant ahead of second-quarter results, pointing to higher hardware costs in the back half of the year.

The bank kept its Buy rating on the stock, saying the company’s AI-driven product cycle story remains intact.

Goldman lowered its second-half 2026 (2H26) gross margin estimate to 72.8% from 73.3%, reflecting elevated hardware costs. The revision also pushed the bank’s full-year EBIT growth forecast toward the lower half of SAP’s own guidance range, at around 15% year-on-year excluding currency effects, down from a prior estimate of around 16%.

SAP’s two pending acquisitions — Dremio and Prior Labs, neither of which has yet closed — are expected to have an insignificant impact on revenue but would be modestly margin dilutive, analysts led by Mohammed Moawalla said.

“However, the company expects to absorb these supported by cost efficiencies elsewhere,” they added.

Goldman made no changes to its organic cloud current backlog (CCB) growth assumptions, keeping its second-quarter estimate at 23.5% year-on-year organic growth excluding currency effects.

It did modestly lift its reported CCB forecast for fiscal 2026 (FY26) to incorporate the recently closed Reltio acquisition, which adds around 80 basis points to growth, bringing the headline second-quarter CCB growth estimate to 24.8% excluding currency.

The analysts also flagged that a certain Middle Eastern customer is expected to ramp down over the coming quarters, which will weigh on cloud revenue growth into the second quarter.

SAP is scheduled to report its second-quarter results on July 23, and Goldman expects a broadly similar macro backdrop to the end of the first quarter given ongoing geopolitical uncertainty.

Looking further out, the analysts noted encouraging signs from SAP’s SAPPHIRE annual user conference, where pipeline improvement was visible, though they noted that "conversion rates remain the key variable."

The constructive long-term view was left unchanged. "SAP continues to offer an idiosyncratic product cycle story in the software sector that remains well within its sweet spot," analysts wrote, pointing to AI-led tools as an accelerant for the company’s ongoing cloud migration cycle, with agentic AI emerging as an additional growth lever underpinned by SAP’s proprietary data advantages.

Goldman kept its 12-month euro price target at €230, while trimming its American Depositary Receipt (ADR) target modestly to $265 from $271 to reflect foreign exchange movements.