As the Trump administration pushes to establish a leaner, more technology-driven federal bureaucracy, mid-sized government software contractors like appian (APPN.US) and pegasystems (PEGA.US) are eyeing new business opportunities.

However, these companies must remain cautious. While they may benefit from these reforms, they face the same budget-cut risks as other firms.

Executives from both companies have publicly expressed support for the goals of the Department of Government Efficiency (DOGE). This reform initiative, championed by Elon Musk, aims to modernize technology across federal agencies.

Appian CEO Matt Calkins stated the company is actively collaborating with DOGE across multiple agencies. Pegasystems CEO Alan Trefler expressed similar views, noting that DOGE's focus on digitization and phasing out outdated systems aligns closely with Pegasystems' core mission of "automating workflows and eliminating inefficiencies."

DOGE's reforms have already triggered layoffs, and contract cancellations, and promoted centralized control of government IT infrastructure. The plan heavily relies on automation and AI technologies, becoming a significant force reshaping how federal agencies operate.

These changes are putting pressure on large federal contractors to prove their worth, but for smaller companies like Appian, they represent a rare opportunity to challenge the dominance of well-established, deep-pocketed suppliers. Calkins noted that as a smaller company lacking traditional customer relationships, Appian often felt disadvantaged in the past.

Appian's software helps automate repetitive tasks (often referred to as process mining) and is currently used by U.S. military branches including the Air Force, Army, and Navy for procurement-related tasks.

Although DOGE's vision appears highly compatible with Appian's products, investors remain concerned. TD Cowen analyst Derrick Wood pointed out that DOGE's review of federal IT contracts might identify certain services as non-essential.

Calkins acknowledged uncertainties during a recent earnings call but emphasized the company's important position in the federal market. Data compiled by federal contract tracking site HigherGov shows one of Appian's contracts with the Department of Education has already appeared on DOGE's cancellation list.

Citigroup analysts noted that Pegasystems, which also provides digital process automation tools to federal agencies, might be affected by adjustments to government technology budgets.

Reports indicate DOGE has canceled approximately $30 million in contracts related to digital modernization. However, overall federal spending has increased during President Trump's administration.