Gartner (IT) needs to deliver substantial growth in contract value to alleviate investor concerns about the disintermediation risk of generative artificial intelligence, RBC Capital Markets said in a note emailed Wednesday.

Contract value growth in Q1 decelerated to 3.5%, not counting federal government agreements. This was due to deals postponed in March related to the conflict in the Middle East, RBC analysts said. They noted that many of these deals were actually closed in April instead.

The company ended Q1 with around $114 million in federal government contracts, and it expects a 250-basis-point drag on growth to ease in Q2 as the company laps the Department of Government Efficiency impacts, the analysts said. Gartner anticipates federal revenue for the year to be flat and return to growth in 2027, the firm noted.

The company expects contract value to accelerate growth for the rest of the year, driven by easing pressures from the government, better customer retention following major renewals, and new wins expected in Q2 and Q3 fueled by a strong pipeline, according to the note.

RBC maintained the company's stock rating at sector perform and lowered the price target to $160 from $175.

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