MW The software slowdown continues, as Workday's stock falls after earnings spook Wall Street

By Christine Ji

While Workday beat earnings expectations, a 'difficult selling environment' for the software industry is weighing on its stock price

Shares of Workday have dropped 13% since the beginning of the year.

Workday Inc.'s second-quarter earnings beat wasn't enough to assuage investor fears about an ongoing downturn in the software industry.

Workday (WDAY) reported earnings per share of $2.21 late Thursday, beating consensus analyst expectations of $2.11, according to FactSet data. It generated $2.35 billion in revenue for the quarter, narrowly beating Wall Street's $2.34 estimate.

However, Workday's lackluster forward guidance pointed to a tough software outlook ahead. The company guided for $2.24 billion of revenue for the current third quarter, in line with analyst expectations, and an adjusted operating margin of 28%, slightly below analyst expectations of 28.1%.

Shares of Workday slumped 3.5% in midday trading Friday.

Software companies across the board have posted lackluster performances this year as investors wonder if artificial-intelligence tools can disrupt traditional software products. Workday's stock price has dropped 14.9% year to date, while the S&P 500 index SPX has gained 9.9%.

"The sizzle of the AI story is depressing legacy-software multiples," Michael Sansoterra, chief investment officer at Silvant Capital Management, told MarketWatch. (Workday is one of Sansoterra's holdings.) Software stocks need to deliver above and beyond guidance to ease investor concerns surrounding AI - a stumbling block that Workday did not clear, Sansoterra said.

Read more: AI is eating software, and Adobe is on the menu. Why the stock could be in trouble.

Workday is focusing on its AI product suite, and BMO Capital Markets analyst Daniel Jester remarked in a note Friday that the company has made progress on growing AI-related bookings. Workday's recent acquisition of the AI recruiting company Paradox also gave Jester more confidence in the company's AI products.

However, Jester noted that Workday is "navigating choppy selling conditions," and "broader enterprise-software worries are likely to continue to impact the stock in the near term." BMO reiterated a buy-equivalent rating but cut its price target to $285 from $314.

Both Sansoterra and Bank of America analyst Brad Sills noted Workday's strong revenues and current remaining performance obligations, which refers to the company's backlog of business that will be recognized as revenue in the coming year. While Sills reiterated his buy rating, he lowered his price target to $265 from $278 on Friday, citing "multiple compression across the group."

Customers have been facing "decision fatigue" in response to the volume of AI tools available, contributing to a tough selling environment, Jefferies analyst Brent Thill wrote earlier this week.

"As generative AI tools rapidly advance, pricing continues to change and new players emerge, customers are in wait-and-see mode as they determine the best way to allocate spend," Thill wrote.

Fellow human-resources software provider Dayforce Inc. (DAY) has also underperformed this year. Although the stock popped on the news that it would be acquired by private-equity firm Thoma Bravo earlier this week, Dayforce shares were still down 5.1% in 2025.

To Jester, the take-private acquisition is another sign of the tough outlook for human-capital management companies. In a note on Thursday, Jester emphasized the "difficult selling environment" for enterprise software "generally."

Despite bullish ratings from most analysts, Workday's poor stock performance shows that investors are spooked by the "AI eating software" narrative," he added.

Workday also faces idiosyncratic headwinds from its government and education customers, as funding cuts in those areas could lead to pressure on the company's revenues, Workday Chief Executive Carl Eschenbach mentioned on the earnings call on Thursday.

However, Eschenbach rebuffed the idea that AI is eating software. "I think AI is software, and we're leaning heavily into it," he said on the call.

Also read: The old software investing playbook is dead. Here's where to put your money now.

-Christine Ji

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August 22, 2025 13:16 ET (17:16 GMT)

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