Workday stock jumps 5% after earnings beat, but analysts split on AI growth outlook

Workday shares WDAY rose about 5% on Friday after the enterprise software company delivered stronger-than-expected second-quarter results, although mixed guidance and uncertainty over the pace of AI-driven growth prompted sharply different views among analysts.

The company reported revenue of $2.649 billion for the quarter ended July 31, up 12.8% from $2.348 billion a year earlier.

Adjusted diluted earnings per share climbed to $2.75 from $2.21.

The results exceeded Wall Street expectations for revenue of $2.64 billion and adjusted earnings of $2.61 per share.

Workday sees AI adoption gaining momentum

Workday's results highlighted growing demand for its artificial intelligence products as the company seeks to turn AI adoption into higher-value customer relationships.

The company said AI accounted for more than 25% of new annual contract value during the quarter.

More than 5,500 customers were using at least one of Workday's internally developed AI agents, representing an increase of more than 35% from the previous quarter.

AI annual recurring revenue also exceeded $600 million, reflecting rising interest in so-called agentic solutions.

However, the financial impact of that adoption is taking time to materialize.

Workday has been using promotional Flex Credits to encourage customers to experiment with its AI offerings, weighing on total subscription backlog growth, which rose 8% year over year.

Bank of America analysts said Workday's AI strategy was “gaining traction but reacceleration is still elusive.”

"The company’s AI initiatives remain early-stage and may require time to drive meaningful financial impact. We lower our estimates to reflect a slower long-term growth trajectory and reiterate our Neutral rating and $205 PO," they wrote.

Guidance leaves investors with mixed signals

Workday forecasts third-quarter subscription revenue of $2.515 billion, slightly above Wall Street's $2.51 billion estimate.

For the full fiscal year, the company expects subscription revenue of between $9.940 billion and $9.950 billion, broadly matching analysts' forecast of $9.95 billion.

While the outlook did not indicate a major deterioration in demand, analysts remained divided over whether Workday can accelerate growth as AI becomes a larger part of its product portfolio.

Freedom Broker downgraded the stock to Hold from Buy while raising its price target to $200 from $180.

The firm cited valuation concerns despite Workday's strong operational performance.

It expects subscription revenue growth to slow to about 11% year over year during the second half of fiscal 2027 and fiscal 2028, partly because bookings are shifting toward Workday's existing customer base.

The brokerage nevertheless raised its operating-margin forecast, citing the company's progress on cost management.

Analysts remain split on Workday stock

Wall Street's reaction to the earnings report has been unusually divided.

Capital One downgraded Workday to Equalweight from Overweight while maintaining a $219 price target, according to a note cited by TheFly.

Citi, meanwhile, raised its price target to $201 from $139 but maintained a Neutral rating.

The firm described the quarter as delivering a “more modest subscription revenue beat” and warned about the potential for another “guide down.”

Barclays was more positive, lifting its target to $224 from $200 and retaining an Overweight rating.

However, it expects a “muted” reaction, saying the “quarter itself was fine and suggests solid execution in a stable macro, but mixed guidance will raise questions.”

Morgan Stanley remained the most cautious among the major brokerages.

Analyst Adam Wood raised his target to $180 from $145 but retained an Underweight rating.

He said Workday's in-line quarter and early fiscal 2028 guidance “set a growth floor and likely mark a clearing event,” but added that the firm continues to favor companies with more direct AI exposure.

Wells Fargo offered the most bullish assessment, raising its price target to $225 from $215 and maintaining an Overweight rating.

Analyst Michael Turrin said management's surprise fiscal 2028 guidance helped anchor the firm's model, although third-quarter cRPO guidance came in below expectations.

Wells Fargo continues to regard Workday as a high-quality asset with increasing terminal value.

AI opportunity faces a test of execution

The contrasting analyst views highlight the challenge facing Workday as it attempts to balance AI investment, customer adoption and growth expectations.

The company's expanding AI revenue and rapid growth in customer adoption suggest its strategy is gaining traction. But analysts remain uncertain about how quickly those developments will translate into accelerated subscription growth.

For investors, the key question is whether Workday can convert its growing AI footprint into stronger bookings and recurring revenue without relying heavily on promotional incentives.

Friday's share-price jump suggests investors initially focused on the earnings beat and improving AI adoption. The divided analyst outlook, however, indicates that the market remains cautious about whether Workday's AI opportunity can produce a meaningful reacceleration in growth.