Increased AI investment suppresses profit margin expectations. Workday (WDAY.US) target price downgraded by Wall Street.

In the early trading session on Wednesday, Workday (WDAY.US) stock price dropped by about 9% at one point, mainly due to the company's latest performance guidance showing subscription revenue and operating profit margins below market expectations. Several analysts pointed out that the core reason for the guidance revision is Workday's increased investment in Generative AI (GenAI) and "Agentic AI" to expand into a larger potential market space. Morgan Stanley analyst Keith Weiss stated in a report that Workday sees a huge opportunity in further automating enterprise workflows through agent-based solutions, especially with the deeper and more integrated capabilities brought by the company's in-house agents, which are more defensive in the long run. "Our strategic judgment is that core financial and human resource systems are the least likely to be disrupted by GenAI, while the expansion of model and agent capabilities will significantly broaden the scope of automatable work, giving vendors a clear advantage in effectively bringing these solutions to market." Morgan Stanley maintained its "equal-weight" rating on Workday, but lowered the target price from $200 to $185. During the earnings conference call on Tuesday evening, Workday co-founder and CEO neel Bhusri clearly refuted the market narrative that AI will replace enterprise management software. Bhusri, who returned to the CEO position earlier this month, emphasized that human resources and enterprise resource planning systems are highly complex, require absolute accuracy and compliance, and cannot be simply replaced by "probabilistic" AI. "Salary payments cannot have probabilistic results; they must be 100% accurate and completed on time." He pointed out that the future lies in the combination of deterministic enterprise applications and probabilistic AI to reshape user experience based on prompts, significantly enhance process automation and execution capabilities, and produce deeper AI insights. Jefferies reiterated its "hold" rating on Workday and lowered the target price from $150 to $115. Jefferies analysts believe that Workday is entering a new cycle of AI investment, but the operating profit margin guidance of around 30% for FY27 implies only a 40 basis point expansion, and subscription revenue growth has also been revised down to 12%-13%. They stated that AI contributions are expected to accelerate only in the second half of the year. The firm will continue to wait and see until more clear and sustainable profit margin improvements are seen. Meanwhile, BTIG maintained its "buy" rating on Workday but lowered the target price from $230 to $175. BTIG pointed out that although organic subscription growth guidance for FY27 implies a slowdown of around 200 basis points, with the market increasingly focusing on long-term value, their outlook for Workday's AI path is "marginally more optimistic." The company plans to monetize in-house and third-party agent API calls around Flex Credits through a tiered billing consumption model, and emphasizes that competitors will not be able to continue using Workday as a foundational "record system" without payment. In terms of industry performance, Workday's competitors SAP SE (SAP.US) stock price remained relatively unchanged; Oracle Corporation (ORCL.US) and Microsoft Corporation (MSFT.US), which provide cloud-based human capital management solutions, rose by 2.6% and 0.7% respectively.