Freedom Broker downgraded Workday from Buy to Hold, citing valuation concerns even as the company delivered better-than-expected results and robust AI-driven growth.
The brokerage raised its price target on Workday to $200 from $180, while maintaining a Hold rating. The move follows a broader reassessment of the stock’s premium valuation despite strong operational performance.
Workday reported total revenue and subscription revenue that slightly exceeded consensus estimates by about 0.5% in the second quarter of fiscal 2027, alongside a 13.35% year-over-year revenue increase. The company’s gross profit margin stood at 75.8% over the trailing twelve months. Annual recurring AI revenue surpassed $600 million, with AI products contributing more than 25% of new annual contract value, according to Stifel.
Total subscription backlog grew 8% year-over-year, though Freedom Broker projects a deceleration in subscription revenue growth to approximately 11% annually through the second half of fiscal 2027 and into fiscal 2028. The brokerage highlighted cost discipline and internal AI-driven automation as drivers of adjusted operating margin and earnings per share that exceeded forecasts.
However, Freedom Broker noted that financial returns from AI remain deferred due to initial adoption efforts and promotional Flex Credits, which weighed on total subscription backlog growth. The shift in booking mix toward the installed base and the absence of near-term revenue acceleration catalysts also contributed to the valuation caution.
Workday’s shares closed at $204.72 on August 28, up $11.15, or 5.76%, while after-hours trading showed no change. The stock has gained 44.71% over the past six months.
Freedom Broker’s downgrade contrasts with several peers that raised their price targets. Cantor Fitzgerald reduced its target to $205 from $220 but maintained an above-average rating. KeyBanc raised its target to $215 from $158, DA Davidson to $190 from $135, Bernstein SocGen Group to $238 from $216, and Stifel to $160 from $115.
Workday also announced a new $4.0 billion share repurchase authorization. Analyst Almas Almaganbetov of Freedom Broker noted that Workday’s dual-class share structure and strong free cash flow make an acquisition by private equity funds extremely unlikely.
