Why Gartner Stock Plummeted 30.3% This Week

Key Points

• Gartner reported Q2 earnings this week, underwhelming investors.

• While the company didn't miss on earnings and revenue estimates, its future contract potential spooked investors.

• The company is hoping its new "AskGartner" AI tool will help it gain some momentum.

• 10 stocks we like better than Gartner ›

Shares of Gartner (NYSE: IT) cratered this week, finishing down 30.3% from last Friday's close. The drop came as the S&P 500 and Nasdaq-100 gained 2.4% and 3.7%, respectively.

Gartner, an IT- and tech-focused business insights company, reported its Q2 earnings earlier this week. Though its current quarter performance met Wall Street's expectations, investors are concerned about future growth.

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Gartner's contract growth slows

The company posted earnings per share (EPS) of $3.11 on $1.7 billion in sales, as well as repurchasing $274 million worth of company stock. However, investors are concerned by what they see in the pace of the company's contract growth.

Image source: Getty Images.

The company's total contract value rose just 4.9% year over year, a slowdown in its growth trajectory for the critical measure of the company's health. Investors are rightfully concerned about what it means for Gartner's future.

Gartner hopes its AI tool will help

The company announced its new "AskGartner" tool, an AI-powered research aid designed to empower clients and reduce friction in an attempt to capitalize on the demand for AI. It remains to be seen how effective this tool is, but it could end up being too little too late as the business competes with AI-first intelligence companies. At the same time, companies also have powerful tools they can build internally using OpenAI or Anthropic's backends.

While the company's stock trades at one of its lowest multiples in decades, it's for good reason. Trends in AI and the broader market are severely eating into Gartner's business model.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.