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Artificial intelligence (AI) was one of the leading 2024 investment themes, driving massive gains for stocks like Nvidia (NVDA) and Palantir (PLTR) as they leveraged AI’s transformative potential. However, not every AI company got equal time in the spotlight. Workday (WDAY), the cloud-based finance and human capital management (HCM) giant, has quietly emerged as a formidable AI innovator.
While others claimed headlines, Workday focused on developing AI-powered solutions aimed at addressing critical business challenges, making it a company ready to shine. Throughout last year, the software company made impressive strides by integrating cutting-edge AI capabilities into its platform, which is designed to tackle real-world business challenges.
For instance, the debut of four transformative AI agents, Recruiter, Expenses, Succession, and Workday Optimize, set a new standard for efficiency in HR and finance. These smart AI tools predict needs, automate workflows, and free up managers to focus on big-picture strategies. Beyond automation, Workday’s AI-powered analytics deliver deep insights from mountains of employee feedback, helping managers supercharge engagement, loyalty, and talent retention.
With these groundbreaking advancements, Workday has become a vital ally for organizations looking to thrive in today’s fast-paced, data-driven world. In fact, December marked a monumental achievement for Workday as it secured a coveted spot in the S&P 500 Index ($SPX) on Dec. 23, a testament to its growing influence as a market leader in HR and finance. Adding to the excitement, Deutsche Bank analysts have recently turned bullish on the stock, forecasting double-digit upside potential. Considering its strategic AI innovations and newfound prestige, Workday is a hidden AI gem worth a closer look.
About Workday Stock
California-based Workday (WDAY) stands as a powerhouse in enterprise software, revolutionizing the way organizations manage their most critical assets, human resources, and finance. By harnessing the power of advanced AI tools, Workday empowers businesses to streamline operations, elevate workforce efficiency, and drive transformative growth. In fact, the company is trusted by over 10,500 organizations worldwide, ranging from dynamic mid-sized businesses to more than 60% of the Fortune 500.
Presently valued at a market capitalization of around $65.4 billion, shares of this software company seem to be massively trailing behind the broader SPX over the past year, delivering negative returns of roughly 13.2%. However, over the past six months, the stock has rebounded with gains of nearly 7%, slightly outpacing the SPX’s 4% gains during the same time frame.
In terms of valuation, the stock is trading at 9.33 times sales, which appears more attractive compared to its own five-year average of 10.11x.
Workday Beats Q3 Earnings Projections
The company dropped its third-quarter earnings for fiscal 2025 in November, which sailed past Wall Street’s top- and bottom-line projections. Workday posted total revenues of roughly $2.2 billion, marking an increase of 15.8% from the previous year, slightly edging past Street estimates. A key driver of this growth was a similar 15.8% year-over-year increase in subscription revenue, which now accounts for a dominant 90.7% of Workday’s total revenue.
During the quarter, adjusted earnings reached $1.89 per share, up 21.2% year over year, and blew past Wall Street’s forecast by a solid 7.5% margin. Workday demonstrated its commitment to shareholder value in Q3 by repurchasing shares worth $157 million, a move that strengthened its capital strategy. As of Oct. 31, the company had roughly $7.2 billion in cash, cash equivalents, and marketable securities.
This financial strength not only underscores Workday’s, stability but also positions it for continued growth and strategic investments. CEO Carl Eschenbach highlighted the company’s Q3 performance as a testament to the growing trust customers have in its platform across industries. He emphasized the global momentum surrounding Workday’s AI-driven innovations and the strength of its partner ecosystem.
For fiscal Q4, management anticipates subscription revenue to reach $2.025 billion, reflecting 15% growth, with a non-GAAP operating margin of 25%. For the full fiscal year the company expects subscription revenue of around $7.703 billion, marking a 17% increase. The non-GAAP operating margin for the entire year is projected to come in at 25.5%.
What Do Analysts Expect for Workday Stock?
On Jan. 8, Workday shares closed up more than 2% following a key upgrade to “Buy” from “Hold” by Deutsche Bank, signaling growing confidence in the company’s prospects.
While the stock’s price action has been underwhelming over the past months, Deutsche Bank analysts, led by Brad Zelnick, are bullish on Workday’s long-term potential, noting that it trades at a depressed cash flow multiple compared to its back-office and GARP application peers despite outperforming them in both revenue and cash growth.
The investment bank raised its target price from $265 to $300, which indicates roughly 22% potential upside from current levels. A significant factor behind the bank’s optimism is Workday's growing embrace of AI, with nearly 30% of expansion deals in Q3 featuring AI solutions like the Recruiter Agent.
This new AI tool saw a quadrupling of new annual contract value (ACV) compared to the previous quarter, with an impressive 150% uplift in average selling price (ASP). Zelnick further added, “We see Recruiter Agent as a way for CHROs to dip into agentic AI arena for HR while also driving better productivity."
Overall, Wall Street appears highly optimistic about WDAY stock, with a consensus “Strong Buy” rating. Of the 34 analysts offering recommendations, 24 advise a “Strong Buy,” two give a “Moderate Buy,” and the remaining eight suggest a “Hold.”
The average analyst price target of $292.06 indicates 18.7% potential upside from current price levels, while the Street-high price target of $350 suggests that WDAY could rally as much as 42% from here.
