IT Q2 Deep Dive: Tariff Pressures Offset AI Momentum as Growth Slows

Research and advisory firm Gartner (NYSE:IT) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 5.7% year on year to $1.69 billion. Its non-GAAP profit of $3.53 per share was 6.8% above analysts’ consensus estimates.

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StockStory’s Take

Gartner’s second quarter saw a negative market reaction despite meeting Wall Street’s revenue expectations and surpassing consensus on adjusted EPS. Management attributed the challenging performance to pronounced headwinds from U.S. federal government procurement changes and widespread cost-saving initiatives driven by anticipated tariff increases. CEO Gene Hall explained, “Measures of CEO confidence fell to recessionary levels, among the fastest drops ever recorded,” and noted that 78% of CEOs surveyed reported implementing cost-cutting measures. These pressures led to extended sales cycles and escalated purchasing decisions to higher executive levels, particularly in tariff-impacted industries.

Looking ahead, Gartner’s outlook is shaped by the rollout of AI-powered tools like AskGartner and ongoing adaptations to address current demand dynamics. Management emphasized a focus on cost optimization solutions and enhancing sales productivity to navigate prolonged deal cycles. CFO Craig Safian stated that the company is “adapting by making operational changes and renewing focus on leveraging our proven sales best practices,” aiming to return to double-digit growth as conditions stabilize. The guidance incorporates persistent external headwinds but highlights expectations for reacceleration in growth as client purchasing patterns normalize.

Key Insights from Management’s Remarks

Management pointed to the dual impact of strong AI-related client demand and significant external headwinds, particularly from tariffs and public sector changes, as key themes shaping the quarter.

• Tariff-driven cost sensitivity: Gartner experienced a sharp increase in clients, especially in importing and exporting industries, escalating purchasing decisions due to anticipated tariff costs. Management reported that around 35-40% of contract value was exposed to these industries, leading to longer sales cycles as deals required CFO or CEO approval.
• U.S. federal government headwinds: New efficiency initiatives in the federal sector, notably through the Department of Government Efficiency (DOGE), made it more difficult for public sector clients to purchase or renew Gartner products. These changes led to a year-over-year decline in contract value within federal accounts.
• AI as top client priority: AI was identified as the single largest demand area across all topics and client roles. Gartner launched AskGartner, an AI-powered tool providing clients with structured, proprietary insights, and began rolling it out to thousands of clients each month.
• Operational adaptations in sales and research: Management responded to the challenging environment by certifying associates on key topics like AI and cost optimization, redesigning insight processes, and enhancing the value of proprietary data. These steps are intended to improve engagement and support a return to higher growth rates.
• Mixed segment performance: While the Insights segment (formerly Research) saw subscription revenue growth, non-subscription revenues remained pressured by shifting client usage patterns. Conferences and consulting segments delivered growth but were subject to variability based on event timing and backlog composition.

Drivers of Future Performance

Gartner’s guidance for the remainder of the year is shaped by persistent macroeconomic headwinds, client focus on cost control, and optimism around AI-enabled offerings.

• AI product expansion: Management is prioritizing the deployment of AI-powered solutions like AskGartner, which are expected to drive both client engagement and internal productivity. The company believes these tools will differentiate Gartner’s value proposition and support long-term growth, although tangible margin improvements from internal AI applications are not yet quantifiable.
• Cost optimization demand: As tariff and macroeconomic pressures continue, Gartner anticipates increased demand for cost optimization services. The company has expanded its capabilities and certified more associates to deliver these offerings, aiming to capture a greater share of client budgets focused on efficiency.
• Salesforce productivity focus: Management is concentrating on restoring historical sales productivity by optimizing territory allocation and training sales teams to promote the full suite of Gartner services. While headcount is expected to remain steady this year, renewed growth in sales roles is projected to support a return to double-digit contract value growth as external headwinds abate.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace and effectiveness of AskGartner’s rollout and resulting client engagement, (2) signs of stabilization or improvement in contract value growth among tariff-impacted and public sector clients, and (3) progress on restoring sales productivity through operational adaptations. Execution in these areas will be critical for Gartner’s return to higher growth rates.

Gartner currently trades at $229.63, down from $337.08 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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