Workday AI Push Signals Durable Growth And Sharper Margins Ahead

Core Insights - Workday demonstrated stronger-than-expected operating margins and rising free cash flow during its Analyst Day, indicating optimism for long-term growth [1][2] - The company has over 75 million users, robust renewals, and expanding AI-driven products, with guidance suggesting higher margins and $15 free cash flow per share by fiscal 2028 [1][4] Financial Performance - Workday reset its subscription revenue guidance to a compound annual growth rate (CAGR) of 13%–14% through fiscal 2028, slightly down from the previous 15% through fiscal 2027 [3] - Management targets operating margins of approximately 35% by fiscal 2028, an increase from the earlier range of 32%–33%, implying annual improvements of around 300 basis points [4] - Free cash flow per share is projected to be about $15 by fiscal 2028, which is 12% above the consensus estimate of $13.50, supported by a $5 billion buyback program [4] AI Initiatives - Workday's AI initiatives are gaining traction, with agentic AI contributing over $150 million in annualized recurring revenue in the second quarter of fiscal 2026, up from less than $50 million a year earlier [5] - Growth could exceed expectations if AI contributions lift net new annual recurring revenue (ARR) above $1.2 billion [6] - Strategic acquisitions like Flowise and Sana are enhancing Workday's AI product portfolio, enabling custom agents and delivering unified enterprise knowledge within workflows [6] Revenue Projections - Analyst projections estimate revenues of approximately $9.52 billion in fiscal 2026 and $10.77 billion in fiscal 2027, with earnings per share (EPS) estimates of $9.09 in fiscal 2026 and $11.29 in fiscal 2027 [6] Comparative Analysis - Workday is compared to Intuit, which has sustained double-digit top-line growth with rising margins, suggesting that Workday could follow a similar trajectory as investors recognize durable growth alongside compounding cash generation [7]