IBM Stock Drops 6.5% After Government Contract Cancellations

IBM's stock price experienced a significant decline of 6.5% following the cancellation of several government contracts by the "Government Efficiency Department." This development was revealed in IBM's first-quarter financial report, which highlighted the impact of the contract termination on the company's financial performance. The "Government Efficiency Department" is a government agency established during the Trump administration, known for its cost-cutting measures that have led to the dismissal of numerous federal employees and the cancellation of billions of dollars in government funding. These actions have also faced legal challenges.

IBM's Chief Financial Officer, James Kavanaugh, stated during a conference call with analysts that the department's cost-cutting measures resulted in the cancellation of some contracts, which had an uncompleted order value of less than $100 million over several years. The contracts in question accounted for less than 5% of IBM's annual total revenue and less than 10% of its consulting business revenue. IBM's CEO, Arvind Krishna, acknowledged that the consulting business is more susceptible to discretionary spending cuts and measures related to the "Government Efficiency Department." Despite this, Krishna expressed confidence in the company's resilience, noting that the impact of Trump's new tariff policies on IBM is minimal. Kavanaugh added that while IBM's direct business exposure outside the U.S. is limited, the company is strategically evaluating alternative supply sources and other measures to mitigate the impact of tariffs.

Despite IBM's first-quarter earnings exceeding Wall Street expectations, the company's stock price continued to decline. The company reported an adjusted earnings per share of $1.60, surpassing the expected $1.42. Its quarterly revenue was $14.5 billion, exceeding the forecast of $14.4 billion. IBM also projected second-quarter revenue between $16.4 billion and $16.75 billion, higher than the analyst consensus of $16.28 billion. However, analysts noted that IBM's software business, which includes its artificial intelligence products and is the company's largest revenue source, underperformed expectations for several quarters. In the current volatile macroeconomic environment, some analysts view IBM's stock as a "safe haven."