To be clear, no one is arguing that companies can’t boycott Israel. They are simply saying that doing so would invalidate your ability to get government contracts in the given state.
The problem is that it cuts both ways. If you say that this is an infringement of first amendment rights, then the logical extension of that is that the government can never refuse a contract based on a company’s free speech. So for example, say Acme Co openly proclaims their support for the Ku Klux Klan… should the state of Michigan be allowed to say that they won’t purchase toilet paper from them?