Goldman Sachs lowers Workday stock price target to $280 on mixed outlook

Workday reported robust second-quarter results, surpassing analyst expectations with $2.21 non-GAAP EPS and $2.35 billion in revenue, alongside strong 14% subscription revenue growth and significant AI product adoption. Despite these positive indicators and raised fiscal year 2026 operating margin guidance, the stock declined 4% in after-hours trading due to investor concerns over implied lower guidance for the second half of fiscal 2026. This has led to mixed analyst sentiment, with Goldman Sachs and BofA Securities lowering price targets while maintaining 'Buy' ratings, underscoring a nuanced outlook for the enterprise software firm.

Analysis

Workday (WDAY) presented a mixed financial picture, reporting second-quarter results that surpassed analyst consensus on both revenue ($2.35 billion vs. $2.34 billion) and non-GAAP EPS ($2.21 vs. $2.11), yet its shares declined 4% in after-hours trading. The negative stock reaction was driven by implied lower guidance for the second half of fiscal 2026, overshadowing strong underlying performance metrics. Key operational strengths included a 14.0% growth in subscription revenue, a robust 16.4% increase in current remaining performance obligations (cRPO), and significant traction in artificial intelligence, with AI-related new net annual contract value more than doubling year-over-year and over 75% of new deals including an AI product. The company also demonstrated enhanced profitability, raising its fiscal year 2026 operating margin guidance by 50 basis points. This dichotomy has led to a nuanced stance from analysts; while Goldman Sachs and BofA Securities trimmed their price targets to $280 and $265 respectively, citing the guidance and macro concerns, both maintained 'Buy' ratings, underscoring a belief in the firm's long-term defensible business model. The stock's high P/E ratio of 123.8 likely amplifies its sensitivity to any deceleration in its growth trajectory.

Key Decisions for Investors

• Investors should weigh the near-term valuation pressure from softened forward guidance against the company's strong execution, particularly its accelerating AI adoption and improving long-term margin profile.
• Given the stock's high valuation and sensitivity to growth expectations, it is prudent to monitor for any further guidance revisions or signs of macroeconomic headwinds impacting enterprise software spending.
• The upcoming Financial Analyst Day in September is a key catalyst, where management's commentary will be critical to clarifying the growth outlook and potentially restoring confidence after the post-earnings stock decline.