IBM shares slide nearly 7% after federal contract suspensions

• Published On: 25 April 2025 at 06:04

Shares of International Business Machines Corp. fell about 7% in early trading on Thursday after the tech behemoth reported that numerous US federal contracts had been cancelled, putting new uncertainty on its consulting business in an increasingly uncertain economic climate.

IBM stated that 15 of its government contracts, totalling around $100 million, had been cancelled owing to cost-cutting measures taken by the Trump administration. While the amount represents a small fraction of IBM's total consulting backlog, experts viewed it as a warning indicator for the company.

"The consulting division is particularly exposed to shifts in government spending and large enterprise budgets," analysts stated, adding that falling demand may further impact the segment in the coming months.

Reflecting these challenges, IBM reported a 2% drop in consulting revenue in the most recent quarter. However, the company stuck to its full-year revenue growth objective of at least 5% on a constant currency basis.

Despite the consulting difficulties, investors and analysts remain focused on IBM's software sector as a key driver of future development. The unit, which includes Red Hat and hybrid cloud services, rose moderately during the quarter but fell short of bullish expectations.

"While one quarter does not define a trend, software growth needs to accelerate in the face of an uncertain macro backdrop and increasingly difficult year-over-year comparisons," Morgan Stanley analysts wrote in a client note.

Nonetheless, IBM's shift towards higher-margin software has helped company maintain its profitability streak. In more than ten years, the company has not missed quarterly earnings expectations. Morningstar analyst Eric Compton noted that software is relatively immune to tariffs and geopolitical shocks, emphasising its strategic importance.

IBM's stock has climbed nearly 12% this year and now trades at a price-to-earnings ratio of 22.24, slightly higher than peers such as Accenture (21.67) and Oracle (19.85). If Thursday's slide continues, IBM will lose more than $17 billion in market value.