Upwork (UPWK) reported a "tough" Q1 as accelerating artificial intelligence adoption and macroeconomic pressure weighed on growth, RBC Capital Markets said.

Revenue came in broadly in line with expectations, while gross services volume missed estimates by about 2% and was flat year over year. Active clients edged slightly lower sequentially to 784,000. Adjusted EBITDA beat estimates by about 24% amid cost discipline and restructuring actions.

Marketplace revenue rose 3% year over year to $195.5 million. Management said geopolitical uncertainty and rising AI adoption, particularly in lower-value contracts under $500, pressured activity at the low end. About 10% of GSV is currently exposed to AI-related disruption, according to the research note Friday.

AI remains both a headwind and a growth driver. While AI-related work is growing strongly, it is increasingly displacing lower-value freelance activity, particularly small contracts. RBC said investors are likely to view AI exposure as a structural risk that could expand over time.

RBC lowered GSV and revenue estimates and raised adjusted EBITDA forecasts due to cost cuts. The firm has a sector perform rating on Upwork and cut its price target to $9 from $20.

Price: 9.10, Change: +0.28, Percent Change: +3.12