Workday Shares Plunge as Subscription Revenue Guidance Disappoints Investors

Workday shares tumbled nearly 8% on Wednesday after the company’s latest forecast for subscription revenue fell short of what many on Wall Street were hoping to see.

The software maker nudged its full-year subscription revenue guidance slightly higher, but the increase was so modest that several analysts cut their price targets and questioned how strong the company’s underlying momentum really is.

The sell-off came at a time when software stocks had already been under pressure in 2025, with investors debating how quickly generative artificial intelligence tools might disrupt established players.

Workday has spent much of this year talking up its own AI initiatives and acquisitions, yet its most recent quarterly update failed to deliver the kind of “beat-and-raise” performance that many shareholders were looking for.

Workday Shares Fall on Modest Subscription Outlook

Wednesday’s move in Workday shares followed the company’s third-quarter earnings release a day earlier, where the focus quickly shifted from recent results to the outlook for the year ahead.

For the fiscal year ending in January 2026, Workday projected $8.83 billion in subscription revenue, which implies growth of about 14.4%. On paper, that is solid double-digit expansion.

But the guidance was only about $13 million higher than what the company had communicated in August, a change small enough that some analysts said it effectively bordered on a slight downgrade when measured against expectations.

The new forecast also reflects added contributions from recent moves. Workday’s finance chief, Zane Rowe, told analysts that the updated figure includes revenue from the acquisition of AI and learning software firm Sana, as well as a contract with the U.S. Defense Intelligence Agency.

For investors following Workday shares, the key disappointment was how little the guidance changed from the prior quarter, even after those incremental boosts were factored in.

Cantor Fitzgerald analysts Matt VanVliet and Mason Marion wrote that investors were probably looking for more of a classic “beat-and-raise” quarter, where results come in ahead of estimates and management lifts its outlook more decisively. Instead, they said the updated view “borders on a slight guide down,” even as they kept a rating equivalent to a buy and reiterated a 12‑month price target of $280.

AI Bets and a $1.1 Billion Deal Struggle to Impress

The muted response to the outlook came despite Workday’s efforts to position itself on the front line of the AI wave sweeping through the software industry.

Across 2025, commentators have worried that generative AI tools capable of quickly writing code could threaten incumbent software vendors, or at least force them to invest heavily just to keep pace. That backdrop has contributed to volatility across the sector, and Workday shares are now part of that story.

Workday has countered those concerns by rolling out several AI “agents” designed to automate and streamline tasks for customers. The company has also been expanding its product lineup through acquisitions.

Earlier this month, Workday closed its $1.1 billion purchase of Sana, an AI and learning software company whose technology is meant to enhance the way organizations train and develop employees. The Sana deal now feeds directly into the subscription revenue guidance that investors are scrutinizing.

On the company’s conference call, CEO Carl Eschenbach highlighted that Workday’s AI products already contributed more than 1.5 percentage points of annualized revenue growth. That metric was intended to show that the push into AI is not just a marketing story but is starting to show up in the numbers.

Even so, the third-quarter earnings update “failed to impress” many on Wall Street. For some, the limited lift to guidance suggested that the near-term payoff from AI and recent acquisitions may be more gradual than bulls had hoped.

Analysts Trim Price Targets and Question Growth Momentum

The reaction from analysts was swift, with several firms adjusting their views on where Workday shares might trade over the coming year.

Stifel, which rates the stock at the equivalent of a hold, cut its price target to $235 from $255. In a note to clients, analysts Brad Reback and Robert Galvin said it does not appear that the business is showing signs of stabilizing momentum.

They pointed in particular to what Workday implied about growth in its 12‑month subscription revenue backlog once the impact of acquisitions is stripped out. According to their interpretation, the underlying growth is slowing, and they expect the trend to continue even as customers adopt the company’s AI products.

Evercore, which maintains a rating equivalent to a buy, used a striking image to capture the mood in its report, likening the outcome to “turkey without the gravy.” The results were not disastrous, but for investors hoping AI and acquisitions would translate into a stronger outlook, the update felt incomplete.

RBC Capital Markets, another firm with a buy‑equivalent rating on Workday shares, also scaled back expectations, lowering its price target to $320 from $340.

RBC analysts noted that, despite the cautious tone of the guidance, Workday’s fiscal third-quarter results did come in ahead of consensus estimates. They also echoed management’s point that AI products are already delivering a measurable lift to revenue growth.

Still, for now, that was not enough to prevent a sharp reaction in the market.

Despite Wednesday’s sell-off in Workday shares, several firms, including Cantor Fitzgerald, Evercore and RBC, continue to see long-term value and retain buy ratings. Their updates suggest that the debate is less about whether the company can grow than about how fast — and how reliably — it can do so.

Others were more cautious, arguing that Workday shares may struggle to find a fresh catalyst until growth in the subscription backlog reaccelerates without relying on acquisitions to pad the numbers.

Software Stocks Under AI Pressure

The episode is playing out against a wider shift in sentiment toward software companies in 2025.

Across the sector, many stocks have come under pressure as generative AI tools, especially those that can generate and refine code, lead investors to reassess which vendors have durable competitive advantages.

For incumbents, the challenge is twofold: convince customers that AI will make their existing platforms more valuable, and show investors that the associated spending will translate into stronger growth rather than just higher costs.

Workday’s recent quarter captures that tension. The company has announced multiple AI agents and completed a high-profile AI acquisition. Its executives can already point to more than 1.5 percentage points of annualized revenue growth tied to AI-related products.

Yet the updated subscription revenue guidance did not deliver the kind of clear acceleration some were hoping those initiatives would bring. That gap between narrative and numbers is one reason the move in Workday shares was so pronounced.

What the Latest Outlook Means for Investors

At roughly 14.4% expected growth in subscription revenue for the fiscal year, Workday is still projecting meaningful expansion. But expectations baked into Workday shares signal that investors want more than just steady growth — they want clear evidence that the company’s AI strategy and acquisitions are creating a stronger, faster-moving business.

The updated guidance, which rose only modestly by $13 million from the August forecast, suggests management is taking a cautious approach in a choppy environment for software spending. It also indicates that contributions from Sana and the Defense Intelligence Agency contract, while helpful, are not yet transforming the trajectory of the business.

For some, that restraint is understandable. For others, it raises questions about how long it will take for AI initiatives and new contracts to show up as a more visible inflection in growth.

Future quarterly updates on the subscription backlog and on adoption of Workday’s AI agents are likely to determine whether Workday shares can regain lost ground or remain under pressure.

Investors will also be watching closely to see if growth in the core business — excluding acquisitions — stabilizes or continues to slow, as some analysts currently expect.

For now, Workday shares reflect a market that recognizes the early revenue lift from AI, yet is not prepared to reward those gains with a stronger outlook without clearer signs of accelerating demand.

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