Enterprise AI Adoption Will Drive Expansion While Risks Will Persist

Key Takeaways

• Rising enterprise adoption of AI and digital transformation fuels demand for Gartner's insights, supporting long-term recurring revenues and margin expansion.
  
• Investments in proprietary tools, datasets, and targeted capital allocation enhance customer value, EPS growth, and shareholder resilience despite temporary market disruptions.
  
• Generative AI, client consolidation, and procurement headwinds threaten Gartner's subscription growth, revenue diversification, and earnings stability amidst evolving market and technology dynamics.

Catalysts

Operates as a research and advisory company in the United States, Canada, Europe, the Middle East, Africa, and internationally.

• The rapid increase in enterprise adoption of AI, digital transformation, cybersecurity, and complex IT strategies is driving rising client demand for Gartner's proprietary insights across multiple functions and industries, supporting potential long-term revenue acceleration as enterprises seek trusted guidance for mission-critical initiatives.
  
• The rollout of AskGartner, a proprietary AI-powered tool, is expected to deepen client engagement, increase user efficiency, and make Gartner's vast research more accessible, which should boost client retention and subscription value over time, contributing to predictable recurring revenues and potentially supporting margin expansion.
  
• Recent headwinds from U.S. federal policy changes (DOGE) and tariff-impacted industries are likely temporary, with the majority of federal contracts expected to normalize in 2026 and beyond; as these disruptions abate, contract value (CV) growth rates are projected to revert to at least high single-digit or double-digit levels, providing a catalyst for revenue reacceleration.
  
• Ongoing investments in expanding proprietary datasets, refining digital delivery platforms, and upskilling client-facing staff on trending topics (like AI and cost optimization) are expected to enhance Gartner's value proposition and support long-term customer lifetime value, bolstering both top-line growth and operating margins.
  
• Gartner's strong free cash flow generation and disciplined capital allocation (including sustained share repurchases and targeted M&A) are set to enhance EPS growth and resilience, even during short-term revenue slowdowns, supporting long-term shareholder value as underlying secular demand trends recover.

Gartner Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gartner's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.7% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $810.6 million (and earnings per share of $12.68) by about August 2028, down from $1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.8x on those 2028 earnings, up from 14.5x today. This future PE is greater than the current PE for the US IT industry at 29.7x.
• Analysts expect the number of shares outstanding to decline by 1.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.24%, as per the Simply Wall St company report.

Gartner Future Earnings Per Share Growth

Risks

• Proliferation of generative AI and advanced open-source tools poses a growing risk to Gartner's core subscription research business, as clients may increasingly use these lower-cost technologies for research and insights, potentially leading to revenue growth deceleration and pressure on net margins over time.
  
• Ongoing widespread corporate cost-cutting and extended approval cycles, particularly in tariff-impacted industries (representing 35–40% of contract value), are compressing new business growth and renewals, risking a prolonged period of subpar CV growth which directly impacts both revenues and earnings.
  
• Structural changes and procurement constraints in significant client segments-such as the U.S. federal government and certain international markets like Canada and Australia-have led to reduced contract value, lower new business rates, and heightened churn, posing persistent headwinds to overall revenue and long-term earnings growth.
  
• Client centralization and buying consolidation, combined with elevated churn among smaller tech vendors, is driving a reduction in the number of subscribing enterprise clients, threatening revenue diversification and making earnings more sensitive to changes in large enterprise contracts.
  
• Gartner's heavy reliance on the subscription model increases vulnerability to subscription renewals and average selling price contractions; if macro headwinds, shifting technology adoption behaviors, or client perceptions about Gartner's independence persist or worsen, this could trigger greater volatility in revenue and net margin performance in future years.

Valuation

• The analysts have a consensus price target of $304.778 for Gartner based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $457.0, and the most bearish reporting a price target of just $225.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.4 billion, earnings will come to $810.6 million, and it would be trading on a PE ratio of 34.8x, assuming you use a discount rate of 9.2%.
• Given the current share price of $242.88, the analyst price target of $304.78 is 20.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.