Elon Musk's latest project, co-chaired with Vivek Ramaswamy, is shaking the financial world to its core. Known as the Government Efficiency Department (DOGE), this initiative, put forth under President-elect Donald Trump, is designed to cut federal spending by targeting $500 billion towards what they call wasteful spending or misuse.
But while Elon sees cost-cutting and deregulation as his ultimate goal, the potential consequences of DOGE have Wall Street worried.
Federal contractors, giant pharmaceutical companies, and even major defense firms like Boeing and Lockheed Martin are bracing for a storm. TD Cowen analysts have raised the red flag. Roman Schweizer, in a note to clients on Friday, called DOGE a "major risk factor" for companies involved in government contracts.
"Cuts may happen, and there will be instability for a few months," he said. For a market already worried about sky-high valuations, DOGE may just be the unwanted wrecking ball.
DOGE targets $500 billion in spending cuts
In an op-ed in the Wall Street Journal, the duo explained their approach: cutting regulatory bloat, reducing administrative costs, and saving billions for taxpayers. They say this will curb federal waste and, in Elon’s words, "make the government go on a diet."
Part of the plan includes cutting discretionary spending, reducing funding for organizations like the Corporation for Public Broadcasting, and restructuring federal workforce policies. For example, Elon wants to reduce the workforce by encouraging voluntary resignations and requiring federal employees to work in person. This is Elon’s classic tactic: cut costs, cut deeper, and then cut even more.
But the problem here is that analysts are skeptical about how much DOGE can actually deliver. TD Cowen estimates this initiative could save between $50 billion and $100 billion annually. Certainly, that's a lot of money, but it's nothing compared to the federal deficit, which is projected to reach $1.7 trillion by 2024. On top of that, Congress will have to approve any major cuts, meaning DOGE is not just constrained — it is effectively handcuffed.
Contractors brace for impact
If DOGE achieves its goals, some of the biggest names in business could suffer massive losses. Federal contractors — companies that live and die by the government budget — are particularly vulnerable.
According to TD Cowen, defense giants like Lockheed Martin, Northrop Grumman, General Dynamics, Boeing, and RTX are among the contractors facing the most losses. The Department of Defense alone has a budget of $877 billion, and any cuts there could impact these companies, hitting them where it hurts the most: their net profits.
It's not just the defense industry that will be affected. Leidos Holdings, a company handling contracts for Homeland Security, Justice, and Transportation, may also feel the pressure.
Pharmaceutical companies like Merck, Pfizer, and Humana are also not safe as they earn billions of dollars through Healthcare and Human Services contracts.
The fear is real — the stocks of some of these companies have been impacted, partly due to high valuations but also because investors are anxious about the impending threat of DOGE.
TD Cowen analysts also point out that while the potential damage is significant, it may not be as catastrophic as some think. Congress still holds control when it comes to regulation.
Of course, no story about Elon can be complete without the craziness of cryptocurrency. Since Trump announced DOGE, Dogecoin (the meme coin that Elon famously supports) has skyrocketed over 150%. Investors are betting big on Elon’s involvement, viewing it as a bullish signal for DOGE.
Retail traders are rushing in, driving a speculative frenzy more like a casino than a market. The cryptocurrency market in general tends to react to every move by Elon. And it has been rising since Trump’s win.
