Shares of Workday fell about 10% in premarket trading on Wednesday after the enterprise software maker forecast weaker-than-expected revenue.
The Pleasanton, California-based group has already seen its stock battered this year amid growing investor anxiety over artificial intelligence.
Workday shares are down about 40% so far this year, reflecting a wider sell-off in software stocks following the launch of new enterprise tools by AI startup Anthropic.
The tools have fuelled fears that automation could erode traditional software revenue streams.
Its latest earnings update did little to ease those concerns, with guidance pointing to slower growth and near-term pressure on profitability.
Revenue forecast misses expectations
Workday said it expects subscription revenue between $9.93 billion and $9.95 billion in fiscal year 2027, below the roughly $10 billion analysts had pencilled in.
The company also forecast first-quarter subscription revenue of $2.335 billion, up 13% from a year earlier but slightly shy of market expectations.
On its previous earnings call, Workday had guided for closer to 14% growth in the fiscal first quarter, making the updated outlook a disappointment for investors already on edge about spending trends.
Adjusted operating margins also came in below expectations.
Workday projected a margin of 30.5% for the fiscal first quarter and 30% for the full fiscal year 2027, compared with analyst estimates of 30.9% and 31.2%, respectively.
AI investment weighs on near-term margins
Chief financial officer Zane Rowe said the company remained committed to its medium-term growth targets but was prioritising additional investment in its agentic AI roadmap to capture a larger market opportunity.
Rowe added that Workday was still focused on margin expansion, “albeit at a slower pace in the near term than what we previously communicated,” reflecting higher spending on AI capabilities.
Those comments reinforced a broader concern across the software sector that companies are being forced to choose between protecting margins and investing aggressively to remain competitive as AI tools advance.
Solid quarter fails to calm markets
Despite the downbeat outlook, Workday’s results for the fiscal fourth quarter were stronger than expected.
Adjusted earnings per share came in at $2.47, up from $1.92 a year earlier and ahead of the $2.32 consensus forecast.
Revenue rose 14.5% year on year to $2.53 billion, broadly in line with analyst expectations.
Longer sales cycles and leadership changes
Workday said elongated sales cycles, particularly in government, education, healthcare and parts of the commercial market, had delayed some large enterprise deals.
The company noted that most of those deals remain active, with a few already closing early in the current quarter.
Earlier this month, co-founder Aneel Bhusri returned as chief executive after stepping aside from the role last year while remaining chairman.
He replaced Carl Eschenbach, whose departure unsettled some investors.
Jefferies analyst Brent Thill recently downgraded Workday to hold on Monday, citing concerns over the abrupt leadership transition.
Management pushes back against AI displacement narrative
On a post-earnings call, Bhusri pushed back against the idea that AI would displace core HR and enterprise resource planning software.
“I personally just don’t see that happening,” he said, arguing that AI would instead enhance existing platforms.
Bhusri said Workday’s applications are inherently complex to build because they must process transactions at speed and with precision, operate under intricate security frameworks and comply with strict statutory and regulatory standards.
As a result, he argued, no amount of coding alone can replicate a full-scale HR or ERP system.
He added that artificial intelligence has yet to reach the level of reliability needed to run payrolls and other mission-critical functions that require consistent accuracy.
“Maybe it eventually becomes a state-machine system that follows the same steps and gets the same result every time,” he said, “but it is not there today.”
Analysts remain cautious
Analysts remain unconvinced.
About 23 analysts — more than half of those covering the stock — cut their price targets after Workday issued the weaker-than-expected forecast for annual subscription revenue.
“In an environment where there is increased scrutiny of every metric amidst the AI debates, the guide likely does not allay investors’ general concerns for app layer names,” Piper Sandler analysts said in a note.
Beyond the direct disruption that AI tools may pose to Workday, some analysts say a broader slowdown in hiring — and potential job cuts driven by the technology — could also weigh on overall demand for HR software across businesses.
From a valuation perspective, Workday trades at a 12-month forward price-to-earnings multiple of 11.94, below peers such as Salesforce.
Even so, investors appear reluctant to step in until there is clearer evidence that growth can stabilise alongside sustained AI investment
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