IBM shares fall after trump administration cancels government contracts

Despite the setback, IBM assured investors that the cancelled contracts would not disrupt its long-term growth strategy, with finance chief James Kavanaugh downplaying the impact, highlighting that they account for only a small fraction of its business

IBM saw its shares drop more than 6% in after-hours trading after the company revealed that 15 of its government contracts, worth around $100 million, were cancelled as part of the Trump administration's cost-cutting measures. Although the impacted contracts represent less than 1% of IBM’s total backlog in its consulting division, analysts noted that the cancellations created new uncertainties for the company at a time when global economic conditions remain volatile, partly due to ongoing US tariff policies.

The cancelled contracts, primarily involving federal consulting work, come amid broader budget tightening within the US government. IBM is not alone in facing challenges in this space, as its competitors, including Accenture, have also been affected by the administration’s push for efficiency in government spending.

Despite the setback, IBM emphasized that the contract cancellations would not derail its long-term growth strategy. Finance chief James Kavanaugh, speaking on a call with analysts, downplayed the impact of the cancellations, noting that they represent a small fraction of IBM’s overall business.

IBM provides optimistic revenue forecast

Kavanaugh also reassured investors by offering revenue guidance for the second quarter, a departure from the company’s usual practice of not issuing quarterly forecasts. IBM expects second-quarter revenue to range between $16.40 billion and $16.75 billion, surpassing the analyst consensus of $16.33 billion.

For the first quarter of 2025, IBM posted revenue of $14.5 billion, a 1% increase year-over-year. However, its consulting revenue declined by 2% to $5.1 billion, in line with expectations. The company’s adjusted profit for the quarter stood at $1.60 per share, exceeding analyst estimates of $1.40 per share, driven by strong performance in its high-margin software segment.

Looking ahead, IBM remains focused on growing its artificial intelligence business, which saw its “AI Book of Business” increase to more than $6 billion, up $1 billion from the previous quarter. While IBM's stock has gained 12% this year, outperforming the S&P 500, some analysts remain cautious due to the broader economic uncertainties.