Piper Sandler upgrades Workday stock rating to Neutral on AI investments

Investing.com - Piper Sandler upgraded Workday (NASDAQ:WDAY), a $58.5 billion market cap software company with strong financial health metrics and 14% revenue growth, from Underweight to Neutral on Wednesday, raising its price target to $235.00 from $220.00.

The upgrade follows Piper Sandler’s observations from the recent Workday Rising conference, where the firm noted Workday has accelerated efforts to increase its relevance in artificial intelligence through multiple strategic initiatives.

Workday has completed three AI acquisitions in the past 30 days, including Sana, Paradox, and Flowise, adding over 1,300 new employees to its workforce. The company has also introduced new Flex Credit options to supplement its employee-based pricing model.

Additionally, Workday has launched a new data cloud featuring zero-copy interfaces with Databricks, Snowflake, and Salesforce, expanding its data integration capabilities.

Piper Sandler cited Workday’s 15% year-to-date stock decline (compared to the S&P 500’s 12% gain) and the company’s enterprise value to free cash flow ratio reaching a 10-year low of 18.8x as factors contributing to a more balanced risk-reward profile.

In other recent news, Workday has reported its second-quarter earnings, which have garnered varied reactions from analysts. RBC Capital maintained its Outperform rating and a $340 price target, noting a modest beat in Q2 earnings. Meanwhile, KeyBanc Capital Markets lowered its price target to $285, citing concerns about the company’s growth trajectory despite exceeding expectations in several areas, including subscription revenue and operating margin. Piper Sandler also adjusted its price target downward to $220, describing the results as "better-than-feared" but insufficient to shift investor sentiment.

Needham kept its Buy rating with a $300 price target, anticipating a potential reduction in Workday’s fiscal year 2027 subscription revenue growth target from over 15% to around 13%. TD Cowen reiterated a Buy rating with a $310 price target, praising the company’s return to historical contracted remaining performance obligation levels. These developments reflect a mix of optimism and caution among analysts regarding Workday’s future performance.

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