What factors influenced KD's earnings volatility in 2025?

Kyndryl Holdings Inc.'s (KD) earnings volatility in 2025 was influenced by a combination of factors:

1. **Market Pressures and Trade Tensions**: The stock fell 14% amid broader market declines due to heightened trade tensions and ongoing tariff challenges affecting global markets. Despite being a certified partner for Google Cloud's AI models, the market downturn and emerging trade tensions contributed to the immediate pressure on the stock price.
2. **Securities Investigation**: The company is under investigation by Block & Leviton for potential securities law violations, following a report by Gotham City Research that alleged Kyndryl inflated its profitability and failed to disclose risks associated with its relationship with IBM. Such investigations and allegations of financial misrepresentation can lead to significant stock price drops and affect investor confidence.
3. **Short Seller Report**: A critical report by Gotham City Research accused Kyndryl of manipulating financial metrics and facing potential cost pressures that could significantly impact earnings. The report alleged that Kyndryl has been inflating its adjusted EBITDA and free cash flow figures, presenting a misleading picture of profitability and cash generation. It also highlighted concerns about Kyndryl’s relationship with IBM, suggesting that the company will encounter higher incremental costs for IBM services, which could result in earnings falling well below consensus estimates.
4. **Financial Performance and Challenges**: Despite reporting strong third-quarter results with revenues of $3.74 billion, a net income of $215 million, and an adjusted EBITDA of $704 million, the company faced challenges such as a 5% year-over-year decline in revenue due to reducing low-margin third-party content and unfavorable exchange rates. There was also a continued impact from workforce rebalancing charges and increased IBM software costs.

In conclusion, Kyndryl Holdings Inc.'s earnings volatility in 2025 was influenced by a combination of market pressures, securities investigations, short seller reports, and financial performance challenges. These factors collectively contributed to the company's earnings volatility during the year.