Shares of International Business Machines Corp. tumbled nearly 7% in early trading on Thursday after the tech giant revealed that several United States federal contracts had been suspended, casting fresh doubts over its consulting business amid an increasingly uncertain economic environment.
IBM disclosed that 15 of its government contracts—worth approximately $100 million—had been shelved due to cost-cutting measures implemented by the Trump administration. While the figure represents a small portion of IBM’s total consulting backlog, analysts flagged it as a troubling signal for the broader business.
“The consulting division is particularly exposed to shifts in government spending and large enterprise budgets,” analysts noted, adding that weakening demand could further strain the segment in the months ahead.
Reflecting these pressures, IBM reported a 2% decline in consulting revenue for the most recent quarter. However, the company maintained its full-year target of at least 5% revenue growth on a constant currency basis.
Despite the consulting headwinds, investors and analysts continue to focus on IBM’s software division as a critical engine for future growth. The unit—home to Red Hat and hybrid cloud services—grew modestly during the quarter but fell short of bullish expectations.
“While one quarter doesn’t define a trend, software growth now needs to accelerate in the face of an uncertain macro backdrop and increasingly tougher year-over-year comparisons,” Morgan Stanley analysts said in a client note.
Still, IBM’s pivot toward higher-margin software has helped sustain its profitability streak. The company has not missed quarterly earnings estimates in over a decade. Morningstar analyst Eric Compton pointed out that software remains relatively shielded from tariffs and geopolitical shocks, reinforcing its strategic importance.
IBM’s stock, which had risen about 12% this year, currently 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 decline holds, IBM is poised to lose more than $17 billion in market value.
