Why Gartner Stock Cratered 27.6% Today

Key Points

• Gartner's Q2 report showed its contract growth rate is slowing.

• The research and intelligence company is seeing its business siphoned off by AI-native companies.

• 10 stocks we like better than Gartner ›

Shares of Gartner (NYSE: IT) fell on Tuesday, finishing the day down 27.6%. The drop came as the S&P 500 and Nasdaq Composite lost 0.5% and 0.7%, respectively.

Gartner, an IT and tech-focused business insights company, reported its second-quarter earnings. Though it beat expectations on many of the more high-profile figures, investors were underwhelmed by the slowing growth in its contracts.

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Gartner beats on sales and EPS

The company's top- and bottom-line numbers were solid, posting earnings per share (EPS) of $3.11 on $1.7 billion in sales, and it repurchased $274 million worth of company stock. However, investors were disappointed in the pace of its contract growth and what it means for the future.

Image source: Getty Images.

The company's total contract value rose just 4.9% year over year, showing a slowdown in its growth trajectory. In the age of artificial intelligence (AI), investors expect robust growth consistently, and deceleration is punished.

Gartner rolls out an AI tool

Hoping to reverse the trend, the company announced its new "AskGartner" tool, an AI-powered research aid designed to empower clients and reduce friction. It could be too little too late.

It is a tough time for the company as it competes with AI-native companies and internal tools that can be built using AI provided by OpenAI or Anthropic.

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 Gartner's very 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.