Investing.com -- Shares of IBM (NYSE:IBM) and Cognizant Technology Solutions (NASDAQ:CTSH) fell 3.3% and 2.7%, respectively, in response to Accenture’s (NYSE:ACN) reported challenges with federal contracts, which saw the consultancy giant’s stock drop by 5.7%. The ripple effect on Thursday’s trading session was felt across the industry as consultancy firms grapple with a shift in U.S. government spending.
Accenture’s announcement revealed that the Trump administration’s focus on reducing federal spending has led to a slowdown in its federal services unit, which makes up about 8% of its total revenue. The U.S. General Services Administration has directed federal agencies to reassess their contracts, resulting in cancellations of non-essential consulting services. This directive has caused a significant impact on sales and revenue, as new procurement actions have decelerated.
Although Accenture’s second quarter of fiscal 2025 showed a 5% increase in revenue to $16.7 billion and a 7% increase in diluted earnings per share, the overall sentiment was dampened by the 3% decline in new bookings to $20.9 billion. The company’s consulting service segment saw a 3% rise to $8.3 billion, indicating resilience in areas such as cloud migration, artificial intelligence, and data security.
Mizuho analyst Sean Kennedy provided insight into the situation: "Amid the volatile macro backdrop and the DOGE concerns that recently pressured the stock, a strong F2Q25 coupled with narrowing the FY CC revenue guidance (+5 to +7% from +4% to +7% prior) should help assure investors. Plus, GenAI momentum is accelerating with new bookings of $1.4bn vs. $1.2bn in F1Q25. However, weak bookings may garner questions."
The downward trend in IBM and Cognizant’s stock prices reflects investors’ concerns about the potential impact of government spending cuts on the broader consulting industry. As companies like Accenture navigate these changes, the market remains attentive to how this will influence the sector’s financial health moving forward.
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