What Happened?
Shares of enterprise software company Workday (NASDAQ: WDAY) fell 2.5% in the morning session after two Wall Street firms issued bearish calls, highlighted by Morgan Stanley downgrading the stock from Equal Weight to Underweight. The firm slashed its price target from $185 to $145. Analysts argued that the pace of AI-driven growth would be gradual, creating an uncertain growth and margin outlook. Morgan Stanley noted that growth deceleration was more persistent than the market priced in, with the human capital management segment expected to slow further. Adding to the pressure, CLSA initiated coverage on the software maker with an Underperform rating and a $92 price target, citing slowing growth metrics. CLSA also flagged that Workday carried the widest gap between GAAP and non-GAAP earnings among its peers. Finally, significant insider selling exceeding $113 million over the previous three months compounded the negative investor sentiment.
The shares were trading at $141.86, down 3.6% from the previous close.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Workday? Access our full analysis report here, it’s free.
What Is The Market Telling Us
Workday’s shares are very volatile and have had 26 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 7 days ago when the stock dropped 3.5% on the news that IBM issued a second-quarter earnings warning, suggesting that enterprise customers may be slashing software budgets to fund hardware purchases. Legacy workflow and application incumbents like ServiceNow (NYSE: NOW), Workday (NASDAQ: WDAY), and Salesforce (NYSE: CRM) fell alongside IBM. Conversely, cybersecurity platforms including CrowdStrike (NASDAQ: CRWD), Okta (NASDAQ: OKTA), and Zscaler (NASDAQ: ZS) rallied. This price action highlights a sharp divergence in how the market treats different software categories under macroeconomic pressure. IBM pre-announced adjusted earnings of $2.93 per share on $17.2 billion in revenue, missing Wall Street estimates of $3.01 and $17.86 billion, respectively. In a letter to investors, CEO Arvind Krishna revealed that the shortfall was driven by a sudden reprioritization of enterprise budgets in late June. Clients shifted their capital expenditure toward servers, storage, and memory chips to secure supply-constrained hardware ahead of expected price increases, causing "numerous large deals" to stall. The IBM pre-announcement provides evidence for a fear that pressured software multiples all year: the massive capital required to build out artificial intelligence hardware appears to be cannibalizing traditional IT budgets. When chief information officers are forced to choose between securing scarce memory chips or signing new enterprise workflow contracts, the update suggests hardware might be winning. Because IBM's broad exposure gives it a comprehensive view of enterprise wallets, its warning suggests a headwind for the broader software-as-a-service sector.
Workday is down 31.1% since the beginning of the year, and at $141.86 per share, it is trading 42.7% below its 52-week high of $247.69 from September 2025. Investors who bought $1,000 worth of Workday’s shares 5 years ago would now be looking at only $597.64.
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