WDAY Jumps 49.7% in 3 Months as AI Momentum Builds: Can it Continue?

Workday, Inc. WDAY shares have gained 49.7% in the past three months, sharply outpacing the broader market. The move puts the durability of the advance in focus as investors weigh stronger operating results against the speed of the recent share-price move.

Subscription growth, rising AI monetization and expanding margins provide fundamental support. Valuation, competitive pressure, longer sales cycles and implementation complexity remain important checks on how much of that operating improvement can translate into further upside.

Workday's 49.7% Rally Meets Stronger Q2 Results

In the second quarter of fiscal 2027, revenues increased 12.8% year over year to $2.65 billion. Non-GAAP earnings rose 24.4% to $2.75 per share. Both topped the Zacks Consensus Estimate, which called for revenues of $2.63 billion and earnings of $2.62 per share.

Subscription services generated $2.47 billion, up 13.9%, and represented about 93% of total revenues. That mix gives Workday a recurring-revenue base alongside the recent share-price advance.

WDAY's AI Adoption Is Turning Into Contract Value

AI products generated more than $100 million of new annual contract value in the quarter and accounted for more than 25% of total new ACV. Agentic AI annual recurring revenues approached $600 million, rising more than 200% year over year and 20% sequentially.

More than 5,500 customers were using at least one organic Workday agent, up more than 35% from the prior quarter. More than half of net new wins included one or more AI solutions, and more than 200 customers had signed up for Flex Credits.

Workday's Backlog and Retention Support Visibility

Twelve-month subscription revenue backlog increased 14.2% to $9.03 billion, while total subscription backlog rose 8% to $27.4 billion. Those contracted commitments add visibility to Workday's recurring subscription model.

Gross revenue retention held near 97%. Expansion among existing customers drove roughly 60% of subscription revenue growth, while the remaining 40% came from customers added after the start of the comparable prior-year period.

WDAY's Margin Gains Add Weight to the Rally

Non-GAAP operating margin expanded to 31.1% from 29%, with non-GAAP operating income rising 21% to $824 million. Workday attributed the improvement to revenue growth outpacing headcount growth and moderated operating expenses.

Management raised fiscal 2027 non-GAAP operating margin guidance to 31% and expects at least two additional percentage points of expansion in fiscal 2028. The targets matter because total costs and expenses still increased 11% in the July quarter.

Workday's Valuation Tests How Much Upside Is Left

Workday's forward 12-month price-to-sales ratio is 4.17, slightly above the sub-industry's 4.07 but below its five-year median of 6.73.

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Oracle Corporation ORCL is a peer in human capital management (HCM), keeping competitive pressure on similar enterprise workflows. SAP SE SAP is another HCM peer, adding to pricing and product competition. Longer sales cycles and complex implementations can also constrain growth and valuation support over time.

WDAY's Mixed Style Scores Temper the Momentum Case

The near-term setup looks balanced. Operating momentum is improving, but competition, execution and valuation still matter when assessing whether the rally can extend.

WDAY carries a Zacks Rank #3 (Hold), which points to a middle-of-the-road short-term setup rather than a top-rated signal. Its Growth Score of A is favorable, but the Value Score of D and Momentum Score of F are weak. The VGM Score of C leaves the combined style profile mixed. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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