Shares of International Business Machines (NYSE:IBM) fell nearly 7% on Thursday morning after the tech giant disclosed that 15 federal contracts had been suspended amid budget cuts by the Trump administration. The suspensions translate to roughly $100 million in lost revenue—a small fraction of IBM’s consulting backlog but a red flag for investors watching the company’s government-facing business.
The decline underscores growing concerns over IBM’s consulting segment, which saw a 2% revenue drop in the latest quarter. Analysts highlighted that IBM’s heavy reliance on government and large enterprise clients makes the segment especially vulnerable in a tightening economy. Despite the setback, IBM reaffirmed its 2025 outlook of at least 5% revenue growth on a constant currency basis.
Market watchers are increasingly turning their attention to IBM’s software unit as a critical growth engine. The division, which includes Red Hat and hybrid cloud services, posted modest growth this quarter but missed optimistic investor projections. Morgan Stanley noted that future software growth must now accelerate to offset macroeconomic challenges and tougher year-over-year comparisons.
Still, analysts like Morningstar’s Eric Compton remain positive on IBM’s software strategy, noting its insulation from tariffs and global uncertainties. Software’s high margins and recurring revenue potential have helped IBM maintain its streak of beating quarterly profit estimates for over a decade.
Year-to-date, IBM shares are up about 12%, but the latest sell-off could wipe out more than $17 billion in market value. The stock trades at a forward P/E of 22.24, higher than Oracle (19.85) and Accenture (21.67), reflecting investor expectations for continued growth in IBM’s software-led transformation.
