Is the Artificial Intelligence Boost Fading for This Top Tech Stock?

Core Viewpoint - Workday's stock experienced a decline following its fiscal 2026 Q1 results, despite showing revenue growth and adjusted profitability that exceeded analysts' expectations. The market's disappointment stemmed from the company's guidance, which indicated lower-than-expected subscription revenue growth [1][5][6]. Financial Performance - Workday reported a revenue increase of nearly 13% year-over-year, reaching $2.24 billion [2][4]. - The company's net income on a GAAP basis fell to $68 million ($0.25 per share) from $107 million the previous year, but on a non-GAAP basis, earnings improved by 28% to $2.23 per share [4]. - Analysts had anticipated earnings of $2.01 per share, indicating that Workday's adjusted profitability significantly outperformed expectations [5]. Market Expectations - The market had high expectations for Workday's growth due to its involvement in AI, leading to disappointment when the company forecasted subscription revenue of $2.16 billion for the current quarter and $8.8 billion for fiscal 2026, both representing around 14% year-over-year growth [5][6]. - Analysts predict continued growth of approximately 13% for fiscal 2026 and 2027, with earnings per share expected to rise by 20% in fiscal 2026 and 16% in fiscal 2027 [11]. Client Engagement and AI Adoption - Workday's revenue growth was bolstered by product expansions among existing clients, including CVS Health, Chipotle, and FedEx, as well as new clients like United Airlines and Mutual of Omaha Insurance [8][9]. - A notable 25% of client expansions during the quarter involved at least one AI offering, highlighting the company's successful integration of AI solutions [10]. Valuation and Investment Potential - Despite the stock's recent decline, it is considered undervalued, with a five-year forward PEG ratio slightly above 1, suggesting it may be a bargain for investors [12][13]. - The company's prospects remain strong, driven by its focus on AI and a growing client base that is increasingly adopting its solutions [13].