WDAY: AI And Midsize Cloud Expansion Will Strengthen Long Term Confidence

Analysts made only a small trim to their Workday fair value estimate to about $275 per share, reflecting a mix of slightly lower and higher price targets across the Street as they weigh solid recent results against questions on growth durability, the role of M&A in cRPO, and the trajectory of AI driven demand.

Analyst Commentary

Street research around Workday clusters around a tight range of price targets, with most firms making modest adjustments rather than wholesale changes. The common thread is that recent execution looks solid, but opinions differ on how durable growth will be and how much credit to give for acquisitions and AI related initiatives.

Bullish Takeaways

Bullish analysts highlight that recent quarterly results were generally solid or in line, with revenue, subscription revenue, and cRPO all cited as above consensus in at least one research note. This supports the view that current execution is aligned with existing expectations.
Some see the higher FY26 subscription revenue guidance, even with questions on the organic component, as consistent with a case for sustained growth. They argue this helps underpin price targets near the US$280 to US$320 range.
Several bullish analysts point to early AI adoption trends and the build out of an AI toolkit through M&A as supportive of Workday’s longer term product relevance. They see this as important for justifying premium valuations.
Strength in specific end markets, including TMT and financial services, is flagged by bullish analysts as evidence that Workday can execute through pockets of sector specific headwinds. They view this as a positive for revenue visibility.

Bearish Takeaways

Bearish analysts are cautious that a strong cRPO print and guidance may be helped by inorganic contribution. In their view, this makes the underlying growth profile look more in line and less supportive of higher valuation multiples.
Some point to FY27 subscription revenue guidance of 13% as a source of concern, as it raises questions on whether growth stabilizes at that level or continues to slow. They see this as a constraint on multiple expansion.
There is skepticism that an accelerated M&A strategy, while helpful to the AI toolkit, meaningfully improves investor confidence in organic growth durability. Bears argue this could cap upside to current price targets.
Several research notes reference the share price reaction, with a mid single digit decline after the report, as a sign that incremental beats and modest guidance raises may not be enough for investors who are focused on longer term growth and AI related execution risk.

What's in the News

Workday issued earnings guidance for the quarter ending January 31, 2026, with expected subscription revenue of US$2.355b and full year 2026 subscription revenue guidance of US$8.828b (Corporate guidance).
Workday launched the Workday EU Sovereign Cloud to offer AI powered HR and finance solutions with data residency, security, and operations kept fully within the EU, built on AWS infrastructure (Product related announcement).
Workday expanded Workday GO, an all in one HR and finance platform for midsize organizations, and introduced Workday GO Global Payroll to provide a single payroll experience across countries, integrated into the Workday environment (Product related announcement).
Workday announced the Paradox Conversational ATS is now available through Workday, focused on high volume frontline hiring with text based candidate interactions and integrated onboarding flows, alongside plans for Workday Frontline Agent availability in Spring 2026 (Product related announcement).
Workday reported multiple share repurchase updates, including completion of a US$1,000m buyback program covering 4,184,521 shares and a separate program repurchasing 2,483,713 shares for US$594.51m, as well as another authorized program under which no shares have been repurchased so far (Buyback tranche updates).

Valuation Changes

The Fair Value Estimate is now US$274.98 per share, slightly below the prior figure of about US$275.88, reflecting a very small adjustment in the model.
The Discount Rate is now 8.63%, almost unchanged from 8.63% previously, indicating only a marginal tweak to the risk assumptions.
Revenue Growth is now 12.72%, very close to the prior 12.72%, with only a minimal change to the long term growth outlook used in the analysis.
The Net Profit Margin is now 16.52%, essentially in line with the earlier 16.52%, showing only a minor recalibration of profitability assumptions.
The Future P/E is now 41.00x, slightly lower than the earlier 41.14x, pointing to a modestly lower valuation multiple embedded in the updated work.

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.

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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.

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