WDAY: AI Adoption And Margin Improvements Will Drive Renewed Market Confidence

Workday's analyst price target has been reduced slightly from $282.05 to $277.28, as analysts cite a mix of solid business execution along with ongoing concerns about the company's growth trajectory and the impact of artificial intelligence trends.

Analyst Commentary

Recent Street research demonstrates a spectrum of perspectives regarding Workday's near-term and medium-term prospects. Multiple analysts revised their price targets for Workday following the company's latest quarterly results and updated outlook. These changes reflect ongoing debates about growth durability, the impact of artificial intelligence integration, and valuation relative to execution.

Bullish Takeaways

Bullish analysts highlight Workday's resilient execution, noting solid quarterly results and an ability to manage sector-specific headwinds, particularly in less robust segments. The company also outperformed in technology and financial services.
The company's early adoption of artificial intelligence and expanding partner network are viewed as positive drivers that could enhance future competitiveness and product capabilities across the enterprise software landscape.
Raised forward guidance for subscription revenues and successful M&A activity are seen as signs that Workday is taking effective steps to capture incremental growth opportunities and broaden its toolkit.
Some analysts have upgraded their overall outlook, stating that Workday is now better positioned for an eventual acceleration of growth when the operating environment improves. Sustained double-digit revenue growth is expected even in a stable macro environment.

Bearish Takeaways

Bearish analysts express concern that much of Workday's reported revenue outperformance was influenced by inorganic contributions, rather than underlying organic growth. They believe this may temper future valuation expansion.
The Street has shown disappointment with medium-term guidance, specifically around FY27 subscription revenue growth. This has left some investors questioning the stability and sustainability of Workday's growth trajectory.
There is ongoing uncertainty about how artificial intelligence will ultimately affect enterprise software markets. Some analysts cite this as a persistent overhang that clouds long-term valuation confidence.
Despite margin improvement and raised guidance, stock price reactions have been muted or negative. This signals skepticism about whether management’s strategic initiatives can fully address deceleration fears.

What's in the News

Workday released revenue guidance of $2.355 billion in subscription revenues for Q4 fiscal 2026, up 15.5%, and $8.828 billion for the full year, up 14.4% (Corporate Guidance).
The company launched Workday EU Sovereign Cloud, which enables EU organizations to use Workday’s AI-powered HR and finance tools while ensuring data remains local and compliant with new EU regulations (Product-Related Announcements).
Google Cloud has joined Workday Data Cloud. This allows customers to analyze and activate Workday HR and finance data within BigQuery and BigLake for AI-driven insights and expands partnerships with Databricks, Salesforce, and Snowflake (Client Announcements).
Workday expanded its all-in-one Workday GO solution for midsize organizations worldwide. This expansion includes the new GO Global Payroll to simplify multi-country payroll and compliance (Product-Related Announcements).
Tabulera and Workday have formed a strategic partnership to automate benefits reconciliation for Workday customers, reducing errors and premium leakage while improving compliance (Strategic Alliances).

Valuation Changes

Consensus Analyst Price Target has fallen slightly from $282.05 to $277.28.
Discount Rate has decreased marginally from 8.63% to 8.56%.
Revenue Growth estimate has risen modestly from 12.70% to 12.85%.
Net Profit Margin has increased from 16.70% to 17.31%.
Future P/E has declined from 45.59x to 40.95x, which reflects reduced forward valuation multiples.

Strong adoption of AI-powered products and targeted acquisitions are boosting cross-selling opportunities and supporting sustained growth and higher average contract values.
Expansion into new markets and investment in global presence are increasing revenue diversity while operational efficiency initiatives are enhancing profit margins.
Rapidly evolving competition and regulatory complexity threaten Workday's pricing power, growth momentum, and profitability, while heavy investments may not yield corresponding efficiency improvements.

Catalysts

About Workday

Provides enterprise cloud applications in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Workday is positioned to benefit from the accelerating demand for cloud-native and AI-powered enterprise solutions, as organizations continue replacing legacy on-premise systems and prioritize digital transformation, driving sustained subscription revenue growth and expanding backlog.
Broad adoption of Workday's AI-enabled HR and finance products (with >70% of customers using Workday Illuminate and >75% of net new deals including at least one AI product), along with acquisitions like Paradox and Flowise, is fueling cross-sell/upsell activity, increasing average contract values and bolstering future topline growth.
Expansion into new product lines and verticals-particularly financial management, federal government (via Workday Government), and medium/enterprise segments with offerings like Workday GO-is increasing the company's total addressable market, supporting elevated growth in revenue and multi-year backlog.
Investments in global footprint (notably UK, Germany, Japan, and now India with local data centers and leadership) are unlocking new revenue pools while providing geographic diversification that can help stabilize and grow overall revenue.
Continued focus on operational efficiency, ecosystem and marketplace development (Workday Extend, partner-driven ACV >20%), and scalable AI infrastructure is enabling operating leverage and margin expansion, driving long-term improvement in non-GAAP operating margin and free cash flow.

Workday Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Workday's revenue will grow by 13.0% annually over the next 3 years.
Analysts assume that profit margins will increase from 6.5% today to 14.3% in 3 years time.
Analysts expect earnings to reach $1.8 billion (and earnings per share of $6.42) by about September 2028, up from $583.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.1 billion in earnings, and the most bearish expecting $1.5 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 52.9x on those 2028 earnings, down from 105.7x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Workday Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The emergence of highly capable AI-powered HCM and ERP start-ups, enabled by rapid innovation in generative AI and "fast fashion SaaS," increases the risk of commoditization, weakening Workday's pricing power and potentially leading to customer churn and revenue pressure over the long term.
Heightened regulatory and data privacy requirements, especially in sectors like government and healthcare, may increase compliance costs and operational complexity as Workday expands; this could compress net margins and slow the pace of innovation.
Sustained high levels of R&D, M&A spending (e.g., Paradox, Flowise) and near-term operating investments needed to maintain competitiveness in AI, platform extensibility, and regional expansion may not deliver sufficient efficiency gains at scale, pressuring profitability and long-term earnings.
Ongoing macroeconomic uncertainty, funding constraints in key verticals (such as state/local government and higher education), and variability in early renewals could cause unpredictable demand cycles and elongate sales cycles, potentially impacting revenue predictability and growth.
Intensifying competition in core international markets (Europe, Japan, India) from established incumbents (SAP, Oracle) and new disruptive SaaS entrants may slow Workday's international market share gains, affecting topline revenue growth and long-term backlog expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $279.048 for Workday based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $340.0, and the most bearish reporting a price target of just $220.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.9 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 52.9x, assuming you use a discount rate of 8.6%.
Given the current share price of $230.73, the analyst price target of $279.05 is 17.3% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Cloud Native And AI Adoption Will Open Global Markets