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Investing.com -- Dell shares dropped after reports emerged that the U.S. Federal government (GSA) is reviewing tech spending and contacting vendors about potential cost cuts.
But Wells Fargo (NYSE:WFC) says the market reaction is “overblown.”
“Dell shares came under pressure today following reports that the Federal government (GSA) has contacted 10 technology providers as it looks for opportunities to cut costs,” analysts wrote. “We think today’s pressure is likely overblown given Dell (NYSE:DELL)’s exposure.”
Wells Fargo estimates that Dell’s U.S. federal business, while not publicly disclosed, is limited relative to the company’s broader revenue base.
Wells Fargo notes that, according to Washington Technology, Dell generated $3.04 billion in federal prime-contract revenue in 2024, a 15% year-over-year increase and up from $1.82 billion in 2022. Of that, 56% came from defense contracts.
Analysts believe PC spending is the most vulnerable area if federal tech cuts materialize. However, Dell’s government-related PC business likely represents less than 7% of total revenue.
“Using a conservative $600 ASP, we’d estimate total Dell U.S. business PC revenue at ~$20–$24B — if we assume that ~15% of this is related to the federal government, we’d get sub-$4.0B/annum of revenue,” the bank said.
Server spending, on the other hand, is expected to remain stable or even benefit from government modernization. “We think that Dell’s defense revenue, representing ~56% of 2024 revenue, is unlikely to be significantly impacted.”
Wells Fargo also pointed to recent federal wins, including a $1.3 billion DHS blanket purchase agreement and a $795 million Department of Defense contract. Dell systems will also power the upcoming Doudna supercomputer announced by the Department of Energy.
Wells Fargo maintains an Overweight rating and $150 price target on Dell shares.