Workday (NASDAQ: WDAY) saw its shares climb approximately 5% in Friday trading after the enterprise software company reported second-quarter results that topped Wall Street expectations. The upbeat earnings were tempered, however, by mixed guidance and lingering questions about the pace at which artificial intelligence initiatives will translate into accelerated growth, prompting sharply divergent views among analysts.
Q2 results exceed estimates
For the quarter ended July 31, Workday posted revenue of $2.649 billion, up 12.8% year over year from $2.348 billion. Adjusted diluted earnings per share came in at $2.75, compared with $2.21 in the same period last year. Both figures surpassed consensus forecasts, which had called for revenue of $2.64 billion and adjusted EPS of $2.61.
AI adoption gains momentum
The company highlighted growing demand for its AI products, noting that AI accounted for more than 25% of new annual contract value during the quarter. Additionally, over 5,500 customers were using at least one of Workday's internally developed AI agents, a jump of more than 35% from the prior quarter. AI annual recurring revenue also surpassed $600 million, reflecting increased interest in agentic solutions.
However, the financial impact of this adoption is still developing. Workday has been using promotional Flex Credits to encourage customers to experiment with its AI offerings, which weighed on total subscription backlog growth—up just 8% year over year.
Analyst reactions: a split on AI trajectory
Bank of America analysts acknowledged that Workday's AI strategy is “gaining traction but reacceleration is still elusive.” They noted that AI initiatives remain early-stage and may require time to drive meaningful financial impact, leading them to lower estimates and reiterate a Neutral rating with a $205 price objective.
Freedom Broker downgraded the stock to Hold from Buy, raising its price target to $200 from $180, citing valuation concerns despite strong operational performance. The firm expects subscription revenue growth to slow to about 11% year over year in the second half of fiscal 2027 and fiscal 2028, partly due to a shift toward existing customers. It did, however, raise its operating-margin forecast on cost management progress.
Capital One also downgraded Workday to Equalweight from Overweight, maintaining a $219 price target. Citi raised its target to $201 from $139 but kept a Neutral rating, describing the quarter as a “more modest subscription revenue beat” and warning of potential for another “guide down.”
On the bullish side, Barclays lifted its target to $224 from $200 with an Overweight rating, though it expects a “muted” reaction, saying the quarter was fine but mixed guidance raises questions. Wells Fargo was the most optimistic, raising its target to $225 from $215 and maintaining Overweight, with analyst Michael Turrin noting that management's surprise fiscal 2028 guidance helped anchor the model.
Morgan Stanley remained cautious, raising its target to $180 from $145 but retaining an Underweight rating. Analyst Adam Wood said the in-line quarter and early fiscal 2028 guidance “set a growth floor and likely mark a clearing event,” but the firm continues to favor companies with more direct AI exposure.
Guidance and outlook
For the third quarter, Workday forecasts subscription revenue of $2.515 billion, slightly above the $2.51 billion consensus. For the full fiscal year, it expects subscription revenue between $9.940 billion and $9.950 billion, broadly in line with analyst expectations of $9.95 billion.
The mixed guidance has left investors weighing whether Workday can convert its expanding AI footprint into stronger bookings and recurring revenue without heavy reliance on promotional incentives. Friday's share-price jump suggests initial optimism over the earnings beat and AI adoption, but the divided analyst outlook indicates lingering caution about the potential for a meaningful growth reacceleration.
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