KeyBanc downgrades Workday, sees limited near-term AI contribution

Investing.com -- KeyBanc Capital Markets downgraded Workday to Sector Weight from Overweight, saying the company’s AI and agentic products look promising but are unlikely to meaningfully boost revenue in the near term.

Analyst Jason Celino said morale among customers, partners and employees at Workday’s Rising event "was more upbeat than we expected," and acknowledged the company is investing aggressively in AI that could lift its fiscal 2028 targets if the strategy pays off. Still, based on KeyBanc’s checks, "the timeline for more meaningful contribution remains very early," the analysts wrote.

Workday disclosed that about 25% of core customers have adopted one or more AI products, up from 10% a year earlier, and that roughly 900 customers have purchased at least one AI agent over the past 12 months, with an average annual recurring revenue uplift of about 12%. The company also acquired C1.ai, positioning it to address identity governance needs in an increasingly agentic environment.

Conversations with more than 15 customers and partners painted a more "realistic" adoption curve, analysts said, with organizations taking a measured approach to AI strategy and budgets. One HR admin at a large technology company said Workday’s "agents can do simple tasks well, but it really struggles as soon as you try to automate more complex functions."

Another, an HR lead at a large healthcare company, said "AI isn’t really part of our initial implementation."

KeyBanc said HR IT budgets may continue to take a back seat to broader enterprise AI initiatives. When asked how companies plan to fund growing AI priorities, several customers pointed to HR IT spending as a potential funding source rather than a growth area. The analysts expect Workday shares to remain range-bound "until we see signs of more meaningful AI contribution or broader subscription revenue reacceleration."

Workday used its Financial Analyst Day to showcase new agentic products without updating financial targets, reiterating guidance given on its second-quarter call for roughly 11% subscription revenue growth and an operating margin above 33% in fiscal 2028.

Analysts said their view could be wrong if Workday takes a stricter stance on usage-based monetization, which could drive stronger revenue contributions, or if persistent take-private speculation around the company materializes.

Original Article

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