Blog

Workday Stock Price Drop: A Golden Opportunity for AI Investors to Buy

Emilia Wright | May 27, 2025

Responsive image

Workday Stock Price Implosion: An Automatic Buy for AI Investors

In a significant turn of events, Workday Inc. (NASDAQ: WDAY) has experienced a considerable decline in its stock price following the release of its cautious Q2 guidance, despite reporting strong Q1 results. As of May 2025, the stock has plunged by 12.52%, reaching $238.01, raising questions among investors about its potential as a buying opportunity, especially for those keen on artificial intelligence (AI) investments.

Key Takeaways from Workday’s Performance

  • Workday’s strong Q1 performance was overshadowed by a cautious outlook for Q2.
  • Subscription revenue is forecasted to grow only marginally throughout the year.
  • Improvements in cash flow set the stage for future capital returns.
  • The stock’s recent drop may provide a compelling entry point for AI-focused investors.

Workday’s Q1 Performance and Market Reaction

Despite meeting and exceeding expectations in Q1, Workday’s forecast for Q2 prompted a notable reaction from investors. The firm’s stock fell dramatically, despite historical data showing that Workday has beaten both top and bottom line estimates 99.5% of the time since 2020. Workday’s strengths during Q1 included:

  • Significant backlog growth.
  • Expansion of profit margins.
  • Improvements in free cash flow.

At current price levels around $235, analysts suggest the stock is positioned to offer a favorable risk-reward profile, setting the stage for potential gains as it approaches the next earnings cycle.

Analyst Expectations and Stock Forecast

Following the cautious guidance for Q2, analysts have adjusted their price targets downwards. Despite this, Workday retains a Moderate Buy rating, with an average revised target of $290, approximately 17% above its current trading levels. The 12-month price forecast is as follows:

  • High: $345.00
  • Average: $293.54
  • Low: $190.00

There is a consensus among analysts that as Workday’s business performance improves later in the year, target revisions could turn more favorable.

Growth Driven by AI and Automation

Workday’s notable Q1 growth can be attributed to advancements in AI and automation. The company reported:

  • 13.4% growth in core subscription revenue.
  • 12.6% increase in overall top-line revenue, which was 100 basis points above consensus estimates.

Additionally, the company secured significant new clients, including Chipotle Mexican Grill and United Airlines, contributing to operational improvements;

  • A 430 basis point increase in adjusted operating margin.
  • A 31% growth in adjusted profit.
  • A 28% rise in adjusted earnings.
  • A 22% growth in cash flow and a 44% increase in free cash flow.

This surge in free cash flow has sufficiently positioned Workday to support share buybacks while maintaining a healthy balance sheet.

2025 Guidance and Subscription Backlog

Despite affirming its full-year guidance in the wake of strong Q1 results, Workday’s Q2 forecast appeared weaker. However, the long-term subscription backlog has been projected to grow by 15.6%, alongside a sizable 19% growth in total subscription backlog. These growth indicators suggest the potential for significant outperformance in the upcoming quarter.

Workday’s Financial Strength

Workday’s financial health remains robust, featuring several key strengths:

  • Strong free cash flow enabling accelerated share repurchases.
  • A solid net cash position combined with low leverage.
  • Stable equity and share count.

Currently, Workday’s stock is trading within the institutional buying range, with institutions holding approximately 90% of the stock and having been net buyers in 2025, although their activity slowed in Q2. Should institutional support falter at this level, the stock risks dipping below key technical support zones, highlighting the importance of maintaining investor confidence moving forward.

Conclusion

In light of recent developments, Workday’s stock price drop could present a lucrative opportunity, particularly for AI-focused investors looking for promising growth potential. As the company navigates its cautious Q2 outlook, the strengths demonstrated in Q1 alongside the favorable long-term prospects suggest that investors may soon witness a rebound in its stock performance.