Subscription revenue once powered the software industry through years of double-digit expansion. Now that engine shows signs of strain. Gartner Inc. delivered another quarter of disappointing subscription results in early 2026. The research and advisory firm’s shares fell sharply afterward. Investors worried that artificial intelligence could disrupt traditional research models.
The Madison Large Cap Fund (Class I) declined 2.7 percent in the first quarter. It still outperformed the S&P 500, which dropped 4.33 percent. Fund managers pointed to a market rotation away from mega-cap technology names. Concerns over AI disruption played a central role. Commodity prices rose amid Middle East tensions. That shift lifted sectors the fund avoided.
Gartner closed at $148.17 on June 12, 2026. Its market capitalization stood at $9.92 billion. The stock posted a one-month return of negative 4.67 percent. Over 52 weeks it lost 63.78 percent. The bottom five detractors for the Madison fund included Gartner, Danaher, Workday, Accenture and Agilent Technologies. “Gartner shares were down following another quarter of disappointing subscription revenue growth,” the fund letter stated. “The results added fuel to investor concerns of potential disruption risk from AI.”
Yet the managers saw reason for optimism. “While likely not totally immune, the company has made several enhancements to the core product and analyst team which we believe will be reflected in results steadily improving in the coming year.” Gartner reported first-quarter revenue of $1.5 billion. That marked a 2 percent increase year over year on a reported basis and a 1 percent decline on a foreign-exchange neutral basis. The number of hedge funds holding the stock dropped to 36 at the end of the first quarter from 50 previously.
This pressure on subscription growth extends far beyond one company. The software-as-a-service sector recorded 12 percent revenue growth in 2024. That figure represented a sharp slowdown from 21 percent annual growth a few years earlier, according to an analysis by BDO (CFO.com). Enterprise-sized SaaS firms with more than $1 billion in sales grew at just 10 percent. Midsize companies between $250 million and $1 billion posted 15 percent growth. The first quarter of 2025 brought no relief. Sector revenue growth turned negative 2 percent.
Inflation and high interest rates drove much of the change. Companies hunted for efficiency. Many turned to layoffs and greater use of AI tools. Research and development spending as a percentage of revenue held steady at 24 percent. Selling, general and administrative costs fell to 49 percent of revenue. Revenue per employee climbed 17 percent. Cash from operations reached 26 percent for enterprise firms and 19 percent for midsize ones.
Public B2B SaaS companies have seen median revenue growth rates decelerate for much of the past decade. A temporary speedup occurred in 2021. The decline resumed afterward. Median monthly recurring revenue for companies in the SaaS Capital Index rose from roughly $25 million in 2014 to $60 million now. For a subset of longer-established firms it climbed from $30 million to $180 million. The correlation between median growth rates and company size shows an r-squared of about 0.85.
But size alone does not explain the recent drop. Growth slowed across every revenue bucket after 2021. The smallest public SaaS companies recorded the most dramatic declines. Profitability improved starting in 2022. Valuation multiples began to reflect higher margins rather than rapid expansion. Higher cost of capital and scarce exit opportunities since 2022 likely encouraged this shift. Market saturation or cautious buyers may have contributed too. Private SaaS firms now face pressure to demonstrate lower burn rates and clearer paths to profit before raising new capital.
Media companies tell a similar story. The New York Times added subscribers through bundled offerings. Yet its stock dropped after earnings even as profit rose. Digital subscription revenue grew. Total subscription revenue increased at a more modest pace. Print subscriptions continued to contract. Investors focused on higher spending on video and other initiatives. The company forecast first-quarter subscription revenue growth between 9 percent and 11 percent. That figure aligned closely with analyst estimates but signaled no acceleration.
Workday offered a particularly stark example. The company forecast 2027 subscription revenue below Wall Street expectations. Its shares tumbled more than 50 percent at one point. Backlog growth slowed. The market appeared to price in persistent challenges for enterprise software providers.
These trends arrive as broader economic signals remain mixed. The Conference Board’s Leading Economic Index rose slightly in April 2026. Rebounding stock prices and building permits helped. Consumer expectations continued to weigh on the index. Six- and 12-month growth rates stayed negative. The board projects 1.7 percent year-over-year GDP growth for 2026. Strong AI infrastructure spending may support business investment. Yet higher energy costs and weak hiring could erode household purchasing power.
Goldman Sachs raised its S&P 500 year-end target to 8000 from 7600. Upgraded earnings estimates drove the change. Still, the bank highlighted risks from softening consumer spending, elevated input costs and fading fiscal stimulus. Profit margins face pressure. AI-related profits may prove less durable than hoped. Geopolitical uncertainty adds another layer.
Subscription models once promised predictable, high-margin revenue streams. Saturation in some categories has set in. Customers scrutinize every renewal. Churn rates climbed in video streaming. Net revenue retention weakened in parts of SaaS. Customer acquisition costs rose. The combination squeezes long-term profitability.
Some categories held up better. Analytics and data management saw median enterprise-value-to-revenue multiples expand in 2025. DevOps, IT management, ERP and security retained premium valuations. These areas support AI adoption and core operations. Companies such as ServiceNow, Datadog, CrowdStrike and Palo Alto Networks benefited.
Yet the broader selloff in software stocks continued into 2026. Valuations hit decade-plus lows in the first quarter as markets weighed AI as an existential threat to traditional SaaS. The average ARR multiple sits well below prior peaks. Stabilization would signal that investors have moved past indiscriminate fears.
Fund managers at Madison believe Gartner’s product improvements and stronger analyst teams will yield better results ahead. Other software leaders pursue similar adaptations. They integrate AI features. They refine pricing. They focus on retention. Success depends on execution in a market that rewards efficiency over pure growth.
The subscription slowdown carries implications for the entire technology value chain. Smaller private companies must adjust expectations. Public firms face intense scrutiny on every earnings call. Investors parse guidance for any hint of further deceleration. CFOs have already reshaped budgets. More changes likely lie ahead.
And the data keeps coming. Recent earnings across software and media reinforce the pattern. Growth has not vanished. It has simply become harder to achieve at prior rates. Companies that adapt their models, control costs and demonstrate durable value should emerge stronger. Those that cling to outdated assumptions about endless expansion face greater risk.
The Madison fund letter captured the tension well. Gartner’s results disappointed. AI concerns intensified. Yet targeted enhancements offer a path forward. Similar stories play out across the sector. The coming quarters will test which management teams can convert those adaptations into renewed momentum.
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