Elon Musk¡¯s cost-cutting drive hits US tech giants: Billions at risk as government contracts dry up, investors left in market limbo

Elon Musk¡¯s aggressive move to reduce $1 trillion in US federal spending has sent shockwaves through the technology sector, leading to serious concerns about revenue losses for major firms reliant on government contracts. With a drastic shift in federal procurement, investors are closely watching how the cuts will impact software giants like Microsoft, Oracle, and Accenture.

Tech firms face billions in lost government contracts

Musk¡¯s cost-cutting measures threaten several companies that have long benefited from federal spending. Microsoft, Oracle, and SAP SE have heavily relied on government contracts for years, but the sudden policy shift could strip them of billions in expected revenue. The Department of Defense recently scrapped plans to use Oracle software for civilian workforce management, signaling that more contract cancellations could follow.

Government spending on software and cloud services is projected to reach nearly $40 billion in 2025, according to Bloomberg Intelligence. However, Musk¡¯s cuts have cast doubt on how much of that spending will materialize. Damian McIntyre, a senior quantitative analyst at Federated Hermes, said that investors now have little clarity on expected growth for companies with federal exposure, making stocks riskier bets.

Market reactions and Musk¡¯s uncertain future role

The financial markets have responded with growing unease. Stocks of government-reliant IT service providers like CACI International and Science Applications International Corp. have plummeted by over 20% since the election. Accenture, which gets 8% of its revenue from US government contracts, recently pointed to Musk¡¯s Department of Government Efficiency (DOGE) as a key reason for its weaker-than-expected results. Meanwhile, Gartner Inc. revealed that $1.2 billion of its revenue is tied to government contracts, a fact that has alarmed investors.

IBM, however, has remained more resilient than its peers, with JPMorgan analysts suggesting that the company¡¯s focus on artificial intelligence may help offset losses from government spending cuts. Despite Musk¡¯s initial goal to slash $2 trillion in federal expenses, DOGE has struggled to meet its targets and has been riddled with missteps. A Politico report recently suggested that Musk may step away from his quasi-governmental role and return to managing his businesses, a claim he has denied. Nevertheless, the report triggered a brief stock rally for some of the hardest-hit firms, with CACI closing up 5.8%.

Software stocks at risk as spending cuts extend to key sectors

Beyond major tech firms, the ripple effects of Musk¡¯s cuts could be widespread. Software companies that provide services to the public sector¡ªranging from healthcare and education to travel and business services¡ªare likely to feel the impact. ServiceNow Inc., which derives 11% of its revenue from government contracts, is seen as particularly vulnerable to budget reductions.

According to Bloomberg Intelligence, software and services companies were initially expected to see earnings rise by 12.3% in 2025. However, that estimate has now dropped to 11.6%, with revenue projections also trending downward. Sean Brehm, chairman of Spectral Capital, advises caution for investors looking at tech firms with federal exposure, warning that the full impact of Musk¡¯s cuts is still unclear.

As Musk pushes forward with his $1 trillion spending reduction plan, the uncertainty in the market continues to grow. Investors and tech firms alike remain in limbo, unsure of how deep the cuts will go and how long the effects will last.

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