Arvind Krishna, the new CEO of IBM, recently expressed concern about possible reductions in the federal R&D budget. He’s most worried about the narrow AI field’s future if these cuts go unchallenged. Krishna spoke to TechCrunch and highlighted another fascinating aspect. Federal contracts today account for between 5% and just below 10% of IBM’s large and growing consulting practice. He spoke to how deep cuts in this segment would have real effects downstream on the tech economy.
In April, on the heels of IBM’s surprise Q1 earnings call, the company dropped another bombshell. They recently announced the cancellation of 15 federal contracts, resulting in a loss of $100 million in anticipated future payments. Krishna made clear that while federal funding is a small slice of IBM’s overall business, it is extremely important. It’s the bedrock of our creativity and factor that powers our advancement.
Rather, the Trump administration continues to propose deep funding cuts. They plan to cut the National Science Foundation’s budget by over 50%. Officials are framing this cut as a much-needed step to wash away what they define as unnecessary and “woke” spending. The Directorate for Technology, Innovation, and Partnerships (TIP) similarly has taken significant budgetary blows. These cuts have targeted many of the programs responsible for fostering innovation.
Krishna is hopeful about R&D funding in the future at the federal level. He stated, “I expect that in a year […] federally funded R&D for AI, for quantum, for semiconductors — I expect it to be in as good or in a better shape than it is today.” He argues dramatically increasing investment in federally funded R&D is the key to economic prosperity and technological competitiveness.
President Trump’s proposed budget for fiscal year 2026 made dramatic cuts to funding for scientific research. Now President Trump has threatened to kill the CHIPS Act. Through this initiative, championed by the Biden administration, the federal government hopes to expand domestic semiconductor manufacturing. The office responsible for administering CHIPS Act funds experienced severe budget cuts earlier this year, raising concerns among industry leaders.
Krishna, like many other tech executives, is making the case that federal R&D funding is at historic lows as a share of GDP. He advocated for an increase in these investments, stating, “We believe that [federal R&D funding] right now [is] happening at close to historic lows in terms of percentage of GDP, and that more federally funded R&D has an incredibly positive effect on the economy, on economic growth, on the competitiveness of the United States, and in investing in many technologies that are essential for our future.”
As negotiations are underway in Congress over federal spending and continuing resolutions, the outlook for R&D funding is unclear. Billions of dollars are poised to come down the pike for AI and IT R&D. Technology sector stakeholders — from startups to Big Tech — will be looking hard at how the federal government proceeds now.
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