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IBM Shares Drop 7% Following Federal Contract Cancellations and Economic Concerns

Despite surpassing Q1 earnings expectations and issuing rare Q2 guidance, IBM's stock declined as government spending cuts and macroeconomic uncertainty raise questions about consulting revenue.

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Overview

  • IBM reported Q1 earnings of $1.60 per share and revenue of $14.54 billion, exceeding analyst expectations.
  • The company maintained its 2025 guidance of at least 5% constant-currency revenue growth and $13.5 billion in free cash flow.
  • IBM disclosed the cancellation of 15 federal contracts worth approximately $100 million due to cost-cutting by the Department of Government Efficiency (DOGE).
  • Consulting revenue dropped 2% in Q1, with analysts highlighting the segment's vulnerability to discretionary spending reductions.
  • IBM issued second-quarter revenue guidance of $16.40 billion to $16.75 billion, breaking from its traditional practice to reassure investors amidst economic uncertainty.