Shares of Dell Technologies (NYSE:DELL) fell following reports that the U.S. General Services Administration (GSA) is reassessing federal technology expenditures and reaching out to vendors about possible cost reductions. However, Wells Fargo analysts argue that 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,” the analysts noted. “We think today’s pressure is likely overblown given Dell’s exposure.”
According to Wells Fargo, Dell’s business with the U.S. federal government, while not explicitly disclosed, is relatively small compared to the company’s overall revenue. Citing Washington Technology, the bank highlights that Dell’s federal prime-contract revenue reached $3.04 billion in 2024, marking a 15% increase year-over-year and a rise from $1.82 billion in 2022. Of that figure, 56% derived from defense contracts.
The analysts consider PC spending the segment most at risk if federal technology budget cuts occur. Yet, they estimate Dell’s government-related PC revenue to be less than 7% of total sales.
“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 report stated.
On the other hand, server-related spending is expected to stay stable or even grow amid government modernization efforts. “We think that Dell’s defense revenue, representing ~56% of 2024 revenue, is unlikely to be significantly impacted.”
Wells Fargo also pointed out recent federal contract wins, including a $1.3 billion blanket purchase agreement with the Department of Homeland Security and a $795 million deal with the Department of Defense. Additionally, Dell will supply systems for the Department of Energy’s upcoming Doudna supercomputer.
Maintaining an Overweight rating on Dell, Wells Fargo set a $150 price target for the stock.