IT Keeps Buying What The Market Keeps Selling

A company is buying its own shares with extraordinary conviction as the market sells them off, creating a high-stakes standoff over its future.

Gartner (IT) is the firm that senior executives at the world’s largest companies pay for advice. When a Chief Information Officer needs to build an AI strategy or a Chief Financial Officer needs to benchmark spending, they turn to Gartner’s research and analysts. Yet the market has treated the company’s stock as if its own future is deeply uncertain. Shares trade around $132.69, a fall of about 66% from their 52-week high. On the other side of that trade is Gartner itself, buying its own stock aggressively.

This creates a stark standoff. Who is right about Gartner’s future: a market pricing in a steep decline, or a management team betting billions that the market is wrong?

How big is management’s bet?

The company’s commitment is measured in billions. Over the past three years, Gartner has repurchased $3.8 billion of its stock, which amounts to a huge 41% of its current market capitalization. The pace has only increased recently, with the company buying back $535 million of stock in the first quarter alone, reducing its total share count by about 4%.

This is a significant capital deployment, and it is not simply offsetting dilution from employee stock plans; the buybacks are more than double the value of stock compensation issued over the same period. By retiring this many shares, management is concentrating all future earnings and cash flow into a smaller number of hands, a clear signal that it believes the stock is deeply undervalued.

Is the business strong enough to justify the buybacks?

Management’s confidence is backed by a business that remains profitable and cash-generative. Revenue over the trailing twelve months grew 2.3%, and the company’s operations are throwing off significant cash. In fact, operating cash flow is 185% of net income, showing the earnings are real. Free cash flow in the most recent quarter was $371 million, up 29% year-over-year. Management is focused on driving client engagement through initiatives like its AskGartner tool, noting that “overall engagement in Q1 was up over 170 basis points compared to the prior year quarter,” which it sees as a key driver for retention and new business.

A similar dynamic of a falling stock price despite a building business is playing out at other large tech firms, as another analysis explores at Oracle.

The market, however, sees a different story. The fear is that these buybacks are burning cash just as the business is hitting a wall. While revenue is growing, the pace has slowed from its 3-year average of 4.8%. More critically, management acknowledged that “client decisions slowed somewhat in March” due to the geopolitical environment. This isn’t a hypothetical risk. It’s a recent, tangible slowdown that could signal a tougher selling environment ahead, making the aggressive buyback program look premature if that trend continues.

What settles the standoff over contract value?

The entire debate boils down to one leading indicator: contract value, or CV. This metric represents the future revenue stream from subscriptions and is the clearest signal of business momentum. Management has been explicit, stating they “expect contract value will accelerate” through the rest of the year. The market is betting it will not.

In the first quarter, total CV growth was just 1% year-over-year. Even excluding the struggling U.S. federal government business, growth was only 3.5%. For investors who see this as a broader theme in the technology sector, a technology ETF like VGT offers diversified exposure. For Gartner, the standoff ends when the next few quarters reveal whether that CV growth rate re-accelerates as promised. That number will determine which side of this multi-billion-dollar bet was right.

If buying weakness in sound businesses is your style, our Buy the Dip screen ranks the dips where quality metrics say the business still works.

Management Is Betting Its Cash. Do Not Bet Your Future

The company buying its own dip is making a calculated bet with corporate cash. If that same stock is an outsized share of your wealth, you are making the identical bet with your retirement – and cutting it back triggers a tax bill. There is a way to protect the position and diversify out tax-efficiently.