Is CGI Group an AI play?

On Jan. 28 National Bank Financial analyst Richard Tse reiterated an “Outperform” rating and $185.00 target on CGI Group (CGI  Group Stock Quote, Chart, News, Analysts, Financials TSX:GIB.A), arguing the post-results pullback following first-quarter fiscal 2026 results has created an attractive entry point despite headline concerns tied to U.S. federal softness and one-off margin impacts.

CGI reported what Tse described as solid, in-line FQ1’26 (CQ4) results, with revenue of $4,078-million, modestly ahead of both National Bank Financial’s $4,034-million estimate and Street expectations of $4,068-million, representing year-over-year growth of 7.7% or 3.4% on a constant-currency basis. Adjusted EBITDA of $804-million and adjusted EPS of $2.12 were in line with both internal and consensus forecasts. EBIT margin came in at 16.1%, down slightly year over year, reflecting the impact of the U.S. government shutdown and a one-time labour cost adjustment in Asia Pacific tied to regulatory changes in India.

Beyond near-term noise, the analyst pointed to what he called an increasingly refined AI narrative at CGI, supported by a growing roster of formal partnerships, including with Google and OpenAI. In his view, AI-related services represent a meaningful incremental growth opportunity across CGI’s existing client base and could support a valuation re-rating as capital deployment accelerates…

Tse said the market’s focus on these one-offs has overshadowed what he views as one of CGI’s stronger quarters in recent periods, particularly on bookings. Total bookings reached $4.47-billion, translating to a book-to-bill ratio of 1.10x. While down sequentially from 1.19x in FQ4’25, Tse said the result was solid given the shutdown-driven weakness in U.S. federal activity, which saw segment revenue decline 13% year over year and book-to-bill fall to 0.46x. Excluding U.S. federal, CGI’s combined book-to-bill was 1.18x, with ratios above 1.0x across nearly all other segments.

Beyond near-term noise, the analyst pointed to what he called an increasingly refined AI narrative at CGI, supported by a growing roster of formal partnerships, including with Google and OpenAI. In his view, AI-related services represent a meaningful incremental growth opportunity across CGI’s existing client base and could support a valuation re-rating as capital deployment accelerates. He said that CGI continues to signal confidence in its acquisition strategy, noting management expects sequential improvement through the balance of the year, including within U.S. federal operations, barring another shutdown.

M&A remains a key growth driver. CGI deployed roughly $1.8-billion on acquisitions in fiscal 2025 and added another $100-million in tuck-in deals during FQ1’26. Tse estimates acquisitions accounted for about 8.1% of FQ1 revenue, while organic growth was down 0.9% year over year, or 5.3% on a constant-currency basis. He said the combination of strong liquidity and increasingly attractive acquisition valuations, now in the 1.0x to 1.5x revenue range versus 2.0x to 2.5x previously, should continue to support accretive capital deployment.

CGI ended the quarter with cash flow from operations of $871.9-million, representing a 21.4% margin, and a days sales outstanding figure of 37 days. During the quarter, the company repurchased 4.6 million shares for $566.9-million, at an average price of $123.92 per share, and renewed its normal course issuer bid, allowing for the repurchase of up to roughly 10% of shares outstanding through February 2027.

Tse forecasts that CGI will generate $3,409-million in Adjusted EBITDA on revenue of $16,867-million in fiscal 2026, improving to $3,593-million in Adjusted EBITDA on revenue of $17,421-million in fiscal 2027.

At roughly 8.1x enterprise value to EBITDA on Tse’s fiscal 2026 estimates, he said CGI offers a compelling risk-reward profile.

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