Tech stocks slide as government seeks contract cuts

Investing.com -- Shares of several leading technology companies, including Dell (NYSE:DELL), CDW (NASDAQ:CDW) Corp, Caci International (NYSE:CACI), Parsons (NYSE:PSN), Leidos, and Adobe (NASDAQ:ADBE), fell in Monday’s trading session following a Wall Street Journal report that the Trump administration is targeting tech firms in its efforts to reduce federal contract spending.

The downturn comes as the General Services Administration (GSA) issued a letter to 10 technology providers, such as Dell and IT firm CDW, demanding justifications for their federal contracts and urging cost-cutting measures. The GSA’s initiative is part of a broader "OneGov" strategy aimed at consolidating federal purchasing and transitioning to outcome-based contracts.

According to the report, the administration’s review has expanded from consulting firms to companies offering a range of technology services to government agencies. The U.S. government’s annual expenditure on IT products and services, which stands at $82 billion, has been criticized for its complex procurement processes that lead to "excessive markups and increased costs to the taxpayer," as stated in the GSA’s letter.

In response to the news, Dell shares dropped 3.8%, CDW Corp fell 3.5%, Caci International declined by 2%, Parsons and Leidos both decreased by 2%, and Adobe saw a 3.5% reduction in its stock price.

William Blair analyst Maggie Nola provided insight into the situation, stating, "CDW traded lower in the aftermarket Friday after an article from the Wall Street Journal reported that the company and several of its VAR peers had received letters from the GSA asking them to justify their work with the federal government and urging them to find areas to cut costs." She noted that government revenue accounted for 10.3% of CDW’s total revenue in the first quarter of 2025, which was a 1.0% decrease YoY and a 12.3% drop from the previous quarter. Nola also mentioned that while the company’s outlook for 2025 does not anticipate a recession, it does expect continued challenges in government and education channels.

Nola further commented on the potential impact of the administration’s actions on CDW, "We see modestly higher risk to government segment revenue in the near term, as well as increased headline risk potential until issues with the GSA are resolved, and we await more clarity before updating our model."

The broader implications for the tech sector include heightened scrutiny on current and future contracts, which could introduce additional challenges for companies in 2025. Despite these concerns, analysts like Nola believe that firms with diversified revenue streams and strong client relationships are well-positioned to navigate the evolving landscape of IT spending and government procurement practices.

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