Workday's AI Promise: Goldman Sachs Adjusts Price Target Amid Revenue Recognition Delays

Workday, Inc. (WDAY) has seen a shift in Goldman Sachs' outlook following the company's third-quarter earnings report. Goldman Sachs analysts lowered their price target to $300, citing delayed revenue recognition from large deals. However, they remain cautiously optimistic about Workday's AI growth potential. This article explores the implications of Goldman Sachs' revised price target and the role of AI in Workday's long-term growth strategy.

Workday's recent earnings report showcased strong performance, with earnings per share of $1.89 beating analyst estimates of $1.76. Revenue also came in at $2.16 billion, surpassing expectations of $2.13 billion. Despite the positive results, shares of WDAY traded lower by 8.26% to $247.87, likely due to concerns about the company's outlook.

Goldman Sachs analyst Kash Rangan reiterated a 'Buy' rating on the stock but lowered the price target to $300 from $305. The analyst noted a slight decrease in fourth-quarter growth due to delayed large-deal revenue recognition and compression in the first quarter of 2025 from leap-year comparisons. However, Rangan is cautiously optimistic, citing potential improvements in the macro environment in fiscal 2026 following election results and potential rate cuts. Additionally, Workday's AI products, such as those featured in the company's recent announcements of Illuminate and new generative AI capabilities, are showing strong traction.

In contrast, Piper Sandler analyst Brent A. Bracelin downgraded Workday to 'Neutral' from 'Overweight,' lowering the price target to $270 from $285. The analyst lowered the growth estimate for Workday in 2026 to 12.5% from 14.0% due to concerns over weak guidance and the company's ability to drive growth next year. However, Goldman Sachs remains optimistic about Workday's AI growth potential, highlighting the company's ability to maintain stable, durable growth and improve margins, which could lead to a stock re-rating.

Workday's AI innovations, such as Workday Illuminate, aim to mitigate the impact of delayed revenue recognition by streamlining processes and enhancing productivity. Illuminate, built on the world's largest HR and finance dataset, accelerates manual tasks, assists employees, and transforms business processes. By adopting AI-driven tools, Workday can anticipate employee needs, deliver personalized experiences, and orchestrate complex tasks more efficiently, ultimately reducing the effects of delayed revenue recognition and boosting long-term growth.

In conclusion, while Goldman Sachs has adjusted its price target for Workday due to delayed revenue recognition, the analyst remains optimistic about the company's AI growth potential. As Workday continues to invest in AI innovations like Workday Illuminate, it is well-positioned to drive productivity gains, cost savings, and improved decision-making, ultimately benefiting shareholders in the long run. Although there may be short-term volatility in the stock price, investors should consider the underlying fundamentals and the potential of AI to propel Workday's growth.