Workday: The Market Underestimates Profit Growth

Workday receives a Strong Buy rating at $145, with valuation at 13.5x FY2027 and 11.5x FY2028 earnings, reflecting market pessimism. Agentic AI is driving larger expansion deals, with new contract value up over 200% year-over-year, though its revenue contribution remains undisclosed. WDAY’s platform expansion, high gross retention (97%), and margin improvements support profit growth, aided by significant share buybacks. Key risks include slowing subscription backlog growth and heavy stock-based compensation, but stable cash flows and AI upsell potential offer upside.

Workday ( WDAY ) has changed much in a short time because a few years ago investors were happy to pay a hefty premium for this fast-growing cloud company. But now the market sees a slowdown in