Key Takeaways:
- AI ARR Surging: Workday’s AI-related annual recurring revenue hit roughly $600 million in Q2, up more than 200% year over year.
- Price Projection: Based on current execution, WDAY stock could reach $269 by January 2029.
- Potential Gains: This target implies a total return of 38% from the current price of $196.
- Annual Return: Investors could see roughly 14% annualized growth over the next 2.4 years.
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Workday (WDAY) delivered another solid quarter, with subscription revenue up 14% to $2.47 billion and total revenue up 13% to $2.65 billion in Q2 of fiscal 2027.
CEO Aneel Bhusri, back at the helm for six months now, says AI products drove more than $100 million of new annual contract value, or over 25% of everything closed in the quarter.
More than 5,500 customers are now using Workday’s AI agents, up 35% from the prior quarter.
Non-GAAP operating margin came in at 31.1%, and the company completed a $5 billion buyback six months ahead of schedule, then approved a new $4 billion program.
Despite the AI momentum, Workday trades at $196, down from its highs, as investors weigh how quickly this new revenue stream will actually show up in the numbers.
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What the Model Says for Workday Stock
Workday sells HR and finance software to large enterprises, and it’s now layering AI agents on top of that core platform.
The pitch is simple: the agents already know a company’s data, permissions, and policies, so they can act safely inside existing workflows rather than as a bolted-on chatbot.
Management pointed to concrete adoption numbers. The Talent Acquisition Agent handled more than 30 million candidate interactions and scheduled 8 million interviews last quarter.
Contract Intelligence Agent drove nearly 70% year-over-year growth in agreements processed.
And 12-month subscription backlog grew 14.2% to $9.03 billion, showing existing customers are still expanding their commitments.
CFO Zane Rowe gave an early look at fiscal 2028, guiding to around 11% subscription revenue growth and at least 2 points of margin expansion, with AI monetization treated as further upside not yet baked into that number.
Using a forecast of 10.9% annual revenue growth and 32.9% operating margins, our model projects the stock could climb to $269 within 2.4 years. This assumes a 16x price-to-earnings multiple, in line with Workday’s current level but well below its longer-term historical averages.
Our Valuation Assumptions
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for WDAY stock:
1. Revenue Growth: 10.9%
Workday grew revenue 13.1% over the past year, but growth has been decelerating from the 23.4% pace of the last decade.
Full-year subscription guidance sits at 13%, and management’s early FY28 target points to around 11%.
We assume growth settles near that guided range as the core business matures, while AI products like Sana Enterprise and Data Cloud represent potential upside not yet fully reflected.
2. Operating margins: 32.9%
Trailing twelve-month operating margin is above 25%, already above the five- and ten-year averages of 24.3% and 17.7%.
Management raised full-year non-GAAP operating margin guidance to 31% and expects at least 2 more points of expansion in FY28.
We assume continued discipline will push margins slightly higher as the company scales AI investments against a larger revenue base.
3. Exit P/E Multiple: 16x
WDAY currently trades at 16.3x forward earnings, a steep discount to its three-year average of 28.4x and its five-year average above 37x.
We’re holding the multiple roughly flat rather than assuming a re-rating, since the market still wants to see AI ARR translate into faster top-line growth before paying a premium again.
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What Happens If Things Go Better or Worse?
Enterprise software companies transitioning to AI-driven revenue can see very different outcomes depending on execution speed. Here’s how Workday stock might perform under different scenarios through January 2031:
- Low Case: If revenue growth slows to 8.9% and net income margins settle at 26.2%, investors could still see a 35.6% total return, or about 7.1% annually.
- Mid Case: With 9.9% growth and 28.0% margins, we expect a total return of 73.1%, or roughly 13.3% annually.
- High Case: If AI adoption accelerates faster than expected, pushing revenue growth to 10.8% and margins to 29.5%, returns could reach 115.5% total, or about 19.0% annually.
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The gap between these outcomes largely depends on how quickly Workday can convert its growing AI ARR and Flex Credits consumption model into faster overall revenue growth, rather than just adoption metrics.
How Much Upside Does Workday Stock Have From Here?
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All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
