Workday shares up 5% after Q2 beat; analysts split on AI

Workday shares rose about 5% on Friday after the company reported stronger-than-expected results for its fiscal second quarter, which ended July 31.

Revenue for the quarter was $2.649 billion, up 12.8% from $2.348 billion a year earlier. Adjusted diluted earnings per share were $2.75, versus analysts’ expectations of $2.61 and revenue estimates of $2.64 billion.

The company said artificial intelligence accounted for more than 25% of new annual contract value in the quarter. More than 5,500 customers were using at least one of Workday’s internally developed AI agents, an increase of more than 35% from the prior quarter. Annual recurring revenue tied to AI exceeded $600 million.

Workday forecast third-quarter subscription revenue of $2.515 billion, slightly above the Street estimate of $2.51 billion. For the full fiscal year, the company expects subscription revenue between $9.94 billion and $9.95 billion.

Management said it has offered promotional Flex Credits to encourage customers to try its AI features. The company reported subscription backlog growth of 8% year over year and said the credits have slowed the pace of backlog growth even as AI adoption rose.

Analysts issued mixed reactions. Bank of America cut estimates, kept a Neutral rating and set a $205 price objective, writing that Workday’s AI strategy is “gaining traction but reacceleration is still elusive.” Citi described the quarter as a “more modest subscription revenue beat” and flagged the potential for another “guide down.” Morgan Stanley’s Adam Wood retained an Underweight rating but raised his price target to $180 from $145, describing results and guidance as having “set a growth floor and likely mark a clearing event.”

Other brokerages were more upbeat. Barclays raised its target to $224 and maintained an Overweight rating. Wells Fargo lifted its target to $225 and kept an Overweight stance, citing management’s fiscal 2028 guidance. Freedom Broker reduced its rating to Hold from Buy while increasing its target to $200, citing valuation concerns alongside higher operating-margin expectations.

Shares closed up about 5% on Friday, following the earnings beat and the company’s disclosure of accelerating AI adoption.