Can a New CEO Save Workday Stock from the Software Apocalypse?
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Wall Street is concerned that artificial intelligence (AI) will affect software stocks, leading to a selloff in some major names, with the latest drop coming after Anthropic rolled out new legal tools for its Cowork product. Software application company Workday (WDAY) also saw shares slip amid AI-related fears.
Although CEO Carl Eschenbach had previously brushed off “overblown” concerns about AI-driven disruption to software business models, Workday has had to cut jobs to bolster investments in AI technology. Recently, the company announced that Eschenbach would step down and that co-founder Aneel Bhusri will assume leadership as CEO, effective immediately. In a statement, Bhusri highlighted the transformation of AI as greater than that of Software-as-a-Service (Saas).
Workday delivers cloud software specializing in human resources and financial management. It simplifies tasks like payroll, recruiting, performance tracking, and financial reporting for companies. The user-friendly system supports smarter choices through insights. Based in Pleasanton, California, Workday powers global businesses with flexible, reliable tools tailored to modern demands. The company has a market capitalization of $40.3 billion.
Concerns about the AI threat and broad-based weakness in the tech sector, especially in the cloud and SaaS segments, have led to a significant decline in WDAY stock over the past year. WDAY stock is down 45% over the past 52 weeks, while shares are down 32% year-to-date (YTD). Most recently, the stock reached a 52-week low of $142.72 on Feb. 11.
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On a forward-adjusted basis, WDAY stock is trading at a price-to-earnings (P/E) ratio of 28.5 times.
For the third quarter of fiscal 2026 (the quarter that ended Oct. 31), Workday’s total revenues increased 12.6% year-over-year (YOY) to $2.43 billion, which was higher than the $2.41 billion that Wall Street analysts had expected. Of course, this growth was driven by increases in its subscription services revenue.
Despite the threat of AI, management highlighted the momentum of the company’s own AI portfolio. In fact, Workday reported that its AI products added more than 1.5 points of annual recurring revenue (ARR) growth during the quarter.
Workday’s intent is to grow its AI talent, both organically and inorganically. The company closed the acquisition of the conversational AI platform Paradox and the AI-based enterprise knowledge tools builder Sana during the quarter.
Workday grew its non-GAAP operating margin from 26.3% to 28.5% YOY. Adjusted net income per share increased 23% from the prior-year period to $2.32, exceeding the $2.13 EPS analysts had expected. For fiscal 2026, Workday expects a 14.4% growth in subscription revenues, as well as a 29% non-GAAP operating margin.
Wall Street analysts are robustly optimistic about Workday’s future earnings. They expect EPS to climb 110% YOY to $1.01 for Q4 fiscal 2026 (to be reported on Feb. 24, after the market closes). For fiscal 2026, EPS is projected to surge 143% annually to $4.10, followed by a 32% growth to $5.41 in fiscal 2027.
Recently, Needham analysts led by Scott Berg reiterated a “Buy” rating on Workday and maintained a $300 price target. However, multiple analysts have also changed their price targets on WDAY stock.
In January, analysts at Barclays kept their bullish “Overweight” rating but lowered the price target from $280 to $275. The price target was adjusted as part of broader adjustments to the software group. While the analysts see a stable backdrop for the software sector this year, stock valuations are expected to remain low.
RBC Capital analysts also maintained an “Outperform” rating on the stock, but lowered the price target from $320 to $300. RBC Capital analysts believe that AI tailwinds in enterprise adoption will become even more apparent this year. However, less prepared peers may remain pressured.
In December, Rosenblatt analysts started covering WDAY stock with a “Neutral” rating and a $235 price target, citing the company’s decelerating growth profile offsetting its rising earnings power.
Workday remains a favored name on Wall Street, with analysts awarding it a consensus “Moderate Buy” rating overall. Of the 42 analysts rating the stock, a majority of 26 analysts have a “Strong Buy” rating, three analysts rate it a “Moderate Buy,” and 13 analysts offer a “Hold” rating. The consensus price target of $266.34 represents 84% potential upside from current levels. Moreover, the Street-high price target of $328 implies 126% potential upside from here.
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On the date of publication, Anushka Dutta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
