Companies Tell Investors DOGE Cuts Will Ultimately Pay Off
US executives are trying to soothe concerns that the Department of Government Efficiency’s contract-slashing spree might hurt profits, saying a modernized public sector is more likely to adopt their tools and services.
DOGE, as Elon Musk’s cost-cutting initiative is known, is an increasingly prominent topic in communications with investors, data compiled by Bloomberg shows. An analysis of the earnings calls of Russell 3000 companies showed it was mentioned more than 200 times by 79 companies this quarter.
Government downsizing could create short-term pain during the transition, but opportunities for the private sector are a “huge positive,” Piper Sandler & Co. Chief Global Economist Nancy Lazar said in an interview. DOGE could free up resources such as labor and grant companies greater say in capital allocation, which tends to be more productive, Lazar said, adding that deregulation could provide a boost for medium-sized companies by cutting regulatory costs.
Industrial and technology companies, several of which get a majority of their revenue from the government, talked about DOGE the most.
Various companies have tried to appear confident on earnings calls. Infrastructure software providers like Okta Inc. are well-positioned to improve the government’s legacy identity systems, Chief Executive Officer Todd McKinnon said on its fourth-quarter earnings call. “The agencies we’ve been successful in, it’s because we’ve been able to consolidate and replace and really help modernize those applications.”
Peer ServiceNow Inc. is saving the federal government “millions and millions” in costs and hours by improving efficiency and automating “mind-numbing” work, said CEO Bill McDermott.
Cutting overhead costs is something companies have been doing in general. “It is a response to competition and staying cost competitive, and the government doesn’t have that. So it is sensical that that might be where DOGE starts,” Northrop Grumman Corp. CEO Kathy Warden said about the changes.
Booz Allen Hamilton Holding Corp., which generates about 98% of its revenue from the government, sees “a much shorter period of adjustment followed by a real clear set of opportunities,” according to CEO Horacio Rozanski.
The optimism doesn’t stop there. Cybersecurity providers could benefit too, said Scotiabank senior analyst Patrick Colville. Pointing to an increase in cyber crime, Colville called DOGE possibly “paradigm shifting” for the US federal government to improve its cyber defenses.
“Over the last six weeks almost all of the cybersecurity companies we spoke to called out DOGE as much more of an opportunity than a threat,” he added. Besides cyber defense, companies involved in cloud services and generative artificial intelligence are poised to gain from the push to shore up the government’s technology, he said.
DOGE is viewed as a “huge win” at Kratos Defense & Security Solutions Inc., CEO Eric DeMarco said. “We’ve already received some contracts in the past month directly related to what’s going on here and the reallocation of resources,” DeMarco said on the most recent earnings call.
Total Washout
Still, Kratos recognized there’s not only upside. In its annual report released on the same day, the defense contractor flagged that pressure on the federal government’s budget could “adversely affect” its revenue and operations.
Workday Inc. also reined in its optimism. Initially touting DOGE as a “really rich opportunity,” CEO Carl Eschenbach recently acknowledged that “right now, there is a lot of uncertainty.”
The cuts are a “total washout” for public companies in the short-term, said Robert Ruggirello, managing director and founder of Brave Eagle Wealth Management, given that the government is a big spender. “Even if you can identify some good sectors and companies that over the medium- to long-term may benefit, nobody’s going to care right now.”
IT service provider Gartner Inc., which had about $270 million in federal government contracts by the end of 2024, said potential government changes may affect business in the short term.
Ruggirello said companies will always put a positive spin on calls. “They don’t want to be responsible for cratering the stock price.”
Photo: Elon Musk at the US Capitol in Washington, DC. Photographer: Al Drago/Bloomberg