With yesterday's fall, the Connecticut-based group's market capitalization has fallen back below $20bn, the level last seen three years ago. This represents three full years of lost earnings for shareholders (at least for those who stayed), especially since the group does not pay dividends. Worse still, since its highs at the beginning of the year, the stock has lost nearly 60%.
However, during this three-year period, revenue rose from $5.5bn to $6.3bn (+15%) and the company continued to strengthen its grip on a market it already largely dominated.
But several factors have clouded the picture and made the outlook for the future much bleaker.
First, artificial intelligence technologies are eating into the market share of information technology. Analysts have pointed out that several customers are starting to reduce the size of their IT contracts by cutting the number of licenses in favor of AI models. The danger that is emerging and frightening investors is that AI will transform and disrupt research, as customers can now develop powerful tools in-house and automate complex tasks that were previously outsourced to specialized service providers.
Second, Gartner is suffering from the federal government's desire to reduce public spending. This semester, 60% of contracts with the US government expired, and about half will not be renewed. The Department of Government Efficiency (DOGE), despite the departure of Elon Musk, is continuing its mission to reduce costs. This is weighing on the accounts of many external service providers.
Thirdly, the macroeconomic and geopolitical context (tariffs, inflation) is prompting companies to cut spending deemed non-essential. Confidence is low, which is contributing to a decline in demand. Paradoxically, investment in technology start-ups, and even more so in those specializing in AI, is reaching record levels.
The only positive and consoling factor is the exchange rate effect, which is working in Gartner's favor. Around a quarter of revenues come from the EMEA region (Europe, Middle East, and Africa), where local currencies (euro, pound sterling, etc.) have appreciated against the dollar, thereby boosting revenues in US currency.
After the results were published and the annual outlook was revised downward, the stock lost 27.5%. Growth for this year is expected to be minimal, and margins are expected to fall to their lowest level in five years.
In the short term, visibility on contract value, a key indicator for the company that measures the value of signed contracts, remains very low. Risks related to public budgets, AI, and the economic climate remain too high.
As a result, the stock's P/E has fallen to an historic low of just 21x earnings. Like Teleperformance, the global leader in outsourced customer relations facing similar disruption from AI, this valuation now appears clearly justified given the subdued outlook and, above all, the threats that these risks pose to the very sustainability of such a company's business model.
