Piper Sandler downgrades Workday stock on AI headcount concerns

Investing.com - Piper Sandler downgraded Workday (NASDAQ:WDAY) from Neutral to Underweight on Thursday, while lowering its price target to $235.00 from $255.00. The enterprise software company, currently valued at $64 billion with a P/E ratio of 131, has shown strong revenue growth of ~15% over the last twelve months. According to InvestingPro data, other analysts maintain more optimistic targets ranging from $250 to $340.

The downgrade reflects concerns about potential artificial intelligence-driven headcount reductions that could impact Workday’s business model, according to the research firm.

Piper Sandler cited "eroding CIO appetite for material investments in applications" as a specific risk factor for the Workday platform in its analysis.

The firm’s revised price target is based on lower estimates and a reduced calendar year 2029 free cash flow margin projection of 32%, down from its previous estimate of 33.5%, factoring in increasing competitive risks from AI.

The new valuation model applies an 18x multiple to Workday’s calendar year 2029 enterprise value to free cash flow ratio, discounted back three years at a rate of 14%.

In other recent news, Workday, Inc. reported a 12-month subscription backlog of $7.63 billion, reflecting a 15.6% increase from the previous year, alongside total revenue of $2.24 billion, marking a 12.6% year-over-year rise. These results slightly surpassed consensus estimates. Despite macroeconomic uncertainties, Workday remains optimistic about its growth prospects, maintaining a fiscal year 2026 subscription revenue outlook of approximately $8.8 billion and a total revenue outlook of $9.5 billion. Meanwhile, JPMorgan adjusted its price target for Workday shares to $295 from $310 but upheld an Overweight rating, noting a mix of positive performance indicators and cautious investor sentiment.

In addition, Workday launched its new Workday Agent Partner Network and Agent Gateway at the Workday DevCon 2025 event, collaborating with tech giants like Accenture (NYSE:ACN), Adobe (NASDAQ:ADBE), and Microsoft (NASDAQ:MSFT). This initiative aims to integrate AI agents across various systems, enhancing workforce management and efficiency. Workday also introduced new AI development tools, including AI Widgets and expanded AI Gateway APIs, to boost productivity and innovation for developers. Oppenheimer reaffirmed an Outperform rating on Workday, citing the company’s strong AI positioning and opportunities for the second half of 2025. Lastly, Workday announced its upcoming Workday Rising 2025 conference, set to showcase AI innovations and gather over 30,000 professionals in San Francisco.

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