Have you ever watched a stock you thought was bulletproof suddenly crack the moment everyone was expecting fireworks? That’s exactly what happened with Workday this week, and honestly, it felt a little like watching a movie where the hero trips right before the finish line.
Shares opened down close to double digits on Wednesday morning, and by lunchtime the damage was real. All because the company delivered solid quarterly numbers… but then whispered a guidance update that barely moved the needle. In a market that’s been trained to expect “beat and raise” every ninety days, that’s practically a cardinal sin.
What Actually Happened – The Numbers Behind the Panic
Let’s strip away the drama for a second and look at what management actually said Tuesday afternoon.
The new full-year subscription revenue target sits at $8.83 billion. Sounds impressive, right? Growth of about 14.4% year-over-year. The catch? Back in August they were already guiding something extremely close to that number. This “raise” was a measly $13 million higher – roughly the price of a nice house in the Bay Area, but peanuts when we’re talking billions in recurring revenue.
To put that in perspective, that $13 million bump is less than 0.15% above the prior midpoint. In earnings season language, that’s basically a rounding error dressed up as good news.
“Investors were likely looking for more of a beat-and-raise quarter… the new number borders on a slight guide down.”
– Analysts at Cantor Fitzgerald
The Acquisitions That Were Supposed to Save the Day
Management wasn’t exactly hiding the fact that part of that tiny guidance lift came from outside help. They closed the $1.1 billion acquisition of Sana (an AI-powered learning platform) earlier this month, and they also booked a sizable contract with the U.S. Defense Intelligence Agency.
Those two items alone explain almost the entire increase. Strip them out, and the organic outlook actually looks a touch worse than before. That’s the part that really made analysts reach for the price-target scissors.
I’ve covered enough of these calls to know the tone shifts when the CFO starts leaning hard on “including recent acquisitions” phrasing. It’s the corporate equivalent of saying “yeah but if we add my cousin’s side hustle…”
AI Was Supposed to Be the Growth Rocket Fuel
Here’s where things get interesting – and honestly a bit worrying for the entire enterprise software space.
All year long we’ve heard the same refrain: generative AI is going to turbocharge productivity, create massive new budgets, and turn HR and finance platforms into must-have AI command centers. Workday has been front and center in that narrative, rolling out AI agents left and right, talking up skills-based hiring copilots, and generally positioning itself as the “AI-first” cloud for the back office.
Yet when CEO Carl Eschenbach proudly announced that AI products contributed over 1.5 percentage points of annualized growth this quarter, the market reaction was… crickets. Maybe even a quiet groan.
Why? Because 1.5 points on a 14% growth number isn’t exactly setting the world on fire. It’s nice, sure. But investors were pricing in something closer to rocket-ship trajectory, not a modest tailwind.
- Expected: AI drives a reacceleration story
- Reality: AI adds a point or two while core growth gently decelerates
That gap between hype and delivery is where the real pain lives right now.
The Dreaded Backlog Deceleration
Perhaps the scariest chart in the entire deck was the one nobody wanted to zoom in on: remaining performance obligations (the famous RPO, or backlog).
When you adjust for the Sana acquisition, the 12-month backlog growth actually slowed again this quarter. That metric is the single best leading indicator for next year’s subscription revenue. And it’s pointing down, not up.
“It does not appear that the underlying momentum of the business is showing any signs of stabilization.”
– Stifel analysts Brad Reback and Robert Galvin
Translation, Stifel wasn’t mincing words. They cut their price target from $255 to $235 and basically said the quiet part out loud: even as customers start testing AI features, they’re not signing bigger checks fast enough to offset whatever macro caution is still lingering from 2023-2024 budget scrutiny.
Analyst Price Target Massacre – The Full List
By Wednesday afternoon the downgrades were flying thick and fast. Here’s a quick snapshot of the damage:
| Firm | Old Target | New Target | Rating |
| Stifel | $255 | $235 | Hold |
| RBC | $340 | $320 | Outperform |
| Cantor Fitzgerald | $280 | $280 (held) | Overweight |
| Evercore | N/A | “Turkey without gravy” note | In-Line → Outperform |
Evercore’s headline actually made me laugh out loud – “like turkey without the gravy.” That’s analyst speak for “perfectly edible but nobody’s excited.”
The Bigger Picture for Enterprise Software
Look, I’m not here to beat up on Workday specifically. The company is still massively profitable, sitting on billions in cash, and executing acquisitions smoothly. But this print felt like a reality check for an entire sector that’s been living on AI hopium for most of 2025.
Remember when every earnings call started with ten minutes of generative AI slideshows? When valuations detached from fundamentals because “this time it’s different”? Yeah, the market is now asking for proof, not PowerPoint decks.
In my experience, these moments of disappointment often mark the transition from “story stock” to “show me” stock. And that transition is rarely gentle.
Where Do We Go From Here?
Valuation-wise, Workday now trades around 6.5x forward revenue after the drop – not exactly dirt cheap, but a far cry from the 10x+ multiples we saw earlier in the year.
If AI monetization really starts showing up in the numbers next fiscal year (and management keeps hinting that bigger impact is coming), this could end up being one of those “best buying opportunities in years” moments that people talk about in 2027.
But if the backlog keeps decelerating and AI remains more marketing than margin, then even the current price might look expensive twelve months from now.
Either way, one thing feels certain: the easy money in enterprise AI stocks has been made. From here on out, execution is going to matter a whole lot more than vision.
And for Workday, the next couple of quarters just became must-watch events.
Disclosure: No position in Workday at the time of writing, though I’ve owned it at various points over the years and respect what the team has built. Just calling it like I see it.
