Workday, Inc. (WDAY) isn't getting much credit as an AI darling, but Bank of America Securities analyst Brad Sills thinks that's missing the point. The company is quietly executing well, closing deals, and trading at a discount that looks increasingly hard to justify.
Sills kept his Buy rating on Workday with a $265 price target, pointing to solid momentum across the business. The company is winning deals with commercial, healthcare, and financial services customers, and demand for its core human capital management platform remains strong. Europe is firming up, partners are optimistic about 2026, and free cash flow growth is looking more realistic now that expectations have been reset.
Strong Demand Across the Board
Channel checks from Sills showed Workday closing deals largely in line with expectations, with growing confidence for next year. Commercial, healthcare, and financial services sectors are all performing well, especially for core HCM solutions. Partners also report healthy demand for add-on products like Extend (the low-code/no-code tools) and talent-acquisition offerings. Even Europe, which had been softer, is showing slight improvement.
The analyst models 16.5% growth in third-quarter current remaining performance obligation (cRPO) in a bullish scenario, backed by this deal activity. For the fourth quarter, he expects cRPO growth of 15.5% year-over-year, matching the third quarter given similar comparisons. On margins, Sills anticipates another beat-and-raise quarter as Workday drives efficiency toward its 35% fiscal 2028 operating margin target. He's forecasting third-quarter and fiscal 2026 margins of 28% and 28.9%, respectively.
AI Concerns Are Overblown
Here's where it gets interesting. Investor worries earlier centered on two things: AI disruption and whether Workday could hit near-term growth targets. Sills argues that solid free cash flow growth is more achievable now, and while Workday might not be viewed as a near-term "AI winner," repeated beat-and-raise quarters would counter bearish fears that the company becomes an AI laggard.
The analyst believes Workday's updated long-term goals—12% to 15% revenue growth and 35% margins—support a credible free cash flow growth model. And here's the kicker: the stock trades at 14 times calendar 2027 FCF, or 0.6 times when adjusted for mid-20s growth. That's well below the historical software peer average of 1.2 times to 2 times.
Growth Runway Still Intact
Sills concluded that Workday has plenty of room to grow through international expansion, mid-market wins, and platform deals—enough to deliver consistent growth and rebuild investor confidence. The company isn't just surviving the AI conversation; it's positioning itself to thrive regardless.
For the third quarter, Sills projected revenue of $2.42 billion and EPS of $2.21.
WDAY shares were trading lower by 0.76% to $229.07 at last check Monday.
