On February 25, it was reported that Workday (NASDAQ:WDAY) saw its stock price fall more than 3% during early trading on Wednesday. This drop followed the company’s latest earnings guidance, which indicated subscription revenue and operating profit margins falling short of market expectations. Several analysts pointed out that the lower guidance was primarily due to Workday’s increased investments in generative AI (GenAI) and “Agentic AI” to expand its potential market reach.
Morgan Stanley analyst Keith Weiss noted in a report that Workday sees significant opportunities in automating enterprise workflows further through agent-based solutions, especially those developed in-house, which provide deeper and more integrated functionality. In the long run, this approach appears to be more defensive. “Our strategic view is that core financial and human resource systems are the least likely to be disrupted by GenAI, and the expansion of models and agent capabilities will significantly broaden the scope of work that can be automated. Existing vendors have a clear advantage in bringing these solutions effectively to market.” Morgan Stanley maintained a “Market Perform” rating on Workday but lowered its target price from $200 to $185.
During Tuesday evening’s earnings call, Workday co-founder and CEO Neel Bhusri firmly rejected the market narrative that AI would replace enterprise management software. Bhusri, who returned as CEO earlier this month, emphasized that human resources and enterprise resource planning systems are highly complex, “record systems” that require absolute accuracy and compliance, making them impossible to be simply replaced by “probabilistic” AI. “Payroll cannot have probabilistic results; it must be 100% accurate and completed on time,” he stated. He highlighted that the future lies in combining deterministic enterprise applications with probabilistic AI, which would reshape prompt-based user experiences, significantly enhance process automation and execution, and provide deeper AI insights.
Jefferies reiterated its “Hold” rating and lowered its target price from $150 to $115. Jefferies analysts believe that Workday is entering a new phase of AI investment, but the FY27 operating profit margin guidance of approximately 30% only indicates a 40 basis-point expansion, and subscription revenue growth has been revised down to 12%-13%. AI contributions are expected to accelerate in the second half of the year. The firm stated that it will remain on the sidelines until more clear and sustainable margin improvements are seen.
Meanwhile, BTIG maintained its “Buy” rating on Workday (NASDAQ:WDAY) but lowered its target price from $230 to $175. BTIG pointed out that while the FY27 organic subscription growth guidance implies a slowdown of around 200 basis points, the firm remains “marginally more optimistic” about Workday’s AI path, given the growing market focus on long-term value. The company plans to monetize self-developed and third-party agent API calls via a tiered billing consumption model around Flex Credits, emphasizing that peers will no longer be able to use Workday as the underlying “record system” without paying.
Regarding competitor performance, Workday’s rival SAP SE (NYSE:SAP) saw its stock price remain flat, while Oracle (NYSE:ORCL) and Microsoft (NASDAQ:MSFT), which both provide cloud-based human capital management solutions, saw increases of more than 4% and 2%, respectively.