Workday (WDAY) Stock Rises On AI Momentum But 39x P E Looms

Workday stock jumped about 6% today, adding to a strong recent run, as investors reacted to a headline that matters far more than a single quarter. The company just turned in another profitable period with Q2 net income of US$632 million and a trailing net profit margin of 12.3%. For a software-as-a-service player priced at roughly 39x trailing earnings, the real story now shifts to the multi-year question: Can this profitability profile and Workday’s artificial intelligence driven subscription momentum support that valuation over time?

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Q2 2027 Earnings Summary

• Total Revenue, Q2 2027 vs Q2 2026: US$2,649 million vs. US$2,348 million (up 12.8%)
• Net Income, Q2 2027 vs Q2 2026: US$632 million vs. US$228 million (up 177.2%)
• Basic EPS, Q2 2027 vs Q2 2026: US$2.58 vs. US$0.85 (up 201.6%)
• Trailing 12 Month Net Profit Margin, Q2 2027 vs Q2 2026: 12.3% vs. 6.5% (margin higher year over year)

Prefer clear charts over another wall of earnings tables and raw figures? See Workday’s full financial picture with a sharp focus on its valuation and profitability trend in our company report for Workday.

Evaluating Workday’s AI-led Growth Milestones

The bullish story around Workday hinges on AI turning the HR and finance platform into a higher revenue per customer engine, not just a useful feature. On that score, Q2 delivered several concrete proof points. Management said AI products generated more than US$100m of new annual contract value in the quarter and now represent roughly US$600m of ARR, around triple last year on this metric. Over 25% of new ACV and more than half of net new wins included AI, which aligns with the idea that AI is becoming embedded in core deals rather than sitting at the edges.

At the same time, 97% gross retention and a US$27.4b subscription backlog support the claim that Workday’s role as a system of record gives it a long runway to sell more AI agents into an existing base, not just chase new customers.

Reveal where the surface looks calm but the models start to disagree on Workday’s next big inflection point by accessing the full revenue and earnings analyst estimates for Workday.

Workday Bear Case: Growth Fears Meet Margin Reality

The bearish story on Workday centers on two ideas: HCM and broader subscription growth could slow towards single digits, and heavy AI and international spending could erode margins rather than support earnings. Q2 does not fully clear those concerns. Management guided FY27 subscription growth around 13% with cRPO growth guided to 11% to 12% in Q3. That is healthy for large enterprise software, but it edges in the direction bears worry about.

On profitability, non GAAP operating margin of 31.1% and free cash flow of US$460m directly challenge the fear that AI outlay will swamp earnings. However, AI ARR of about US$600m, even after very large year on year growth, is still a modest slice of a US$27.4b subscription backlog. That shows AI is helping Workday but has not yet become the clear, company wide earnings engine that would fully disarm the slowdown narrative.

With Workday now profitable and AI spending under scrutiny, the key question is whether current cash generation and obligations support this valuation through the next investment cycle. Verify the real balance sheet and cash runway by reviewing the financial health analysis of Workday stock.

Strengthen Your Next Investing Move

If Workday’s mix of profitability and AI driven subscription growth has your attention, register for free with Simply Wall St and add it to a Watchlist to track the share price against fair value and watch for a more comfortable entry point. After you own the stock, use the Portfolio Command Center to cut through market noise and focus on the updates that matter for your holdings. For a longer term view, compare your thinking with thousands of other investors through the Community and gauge sentiment around key developments. By surfacing potential catalysts and risks early, Simply Wall St helps you stay ahead of the market instead of reacting to it.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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