IBM reported first-quarter 2025 earnings that surpassed analyst expectations, with revenue of $14.54 billion, up 1% year-over-year, and earnings per share of $1.60. Net income for the quarter was $1.055 billion. Software revenue grew 7% to $6.3 billion, consulting revenue declined 2% to $5.1 billion, and infrastructure revenue fell 6% to $2.9 billion. The company reaffirmed its full-year revenue growth guidance of 5% and a free cash flow target of $13.5 billion. Operating cash flow for the quarter was $4.37 billion, with free cash flow at $1.96 billion. Despite the positive results, IBM shares fell as much as 8.6% during trading, closing down around 6.6%, after the company disclosed that the U.S. Department of Government Efficiency (DOGE), led by Elon Musk, had cut or paused around 15 federal contracts, amounting to approximately $100 million in backlog. Federal contracts constitute less than 5% of IBM's revenue, but the cuts primarily impacted the consulting business, which is more sensitive to discretionary pullbacks. Consulting signings were down 9% year-over-year. IBM executives, including CEO Arvind Krishna and CFO James Kavanaugh, said the DOGE-related cancellations represent a small portion of the company’s $30 billion consulting backlog and downplayed their immediate impact. The company also cited ongoing economic uncertainty and global tariffs as factors contributing to client caution, particularly in consulting. IBM has limited exposure to U.S. tariffs, with imported goods representing less than 5% of overall spend. IBM continued to see demand for its generative AI offerings, adding over $1 billion in new AI business in the quarter and reaching more than $6 billion in total AI-related bookings, mostly in consulting. The company reported $3.5 billion in productivity improvements from AI agents over the past two years. Red Hat revenue has about doubled since IBM’s acquisition, and Red Hat OpenShift reached $1.5 billion in annual recurring revenue. The company also highlighted the upcoming launch of its z17 mainframe in eight weeks and the recent acquisition of HashiCorp. Looking ahead, IBM maintained its second-quarter revenue outlook between $16.4 billion and $16.75 billion. Management emphasized the company’s ongoing focus on supply chain optimization and noted that software gross margin was 83.6%, consulting gross margin was 27.3%, and infrastructure gross margin was 52.8% for the quarter.