Workday Q2 Preview: A bellwether for “agentic AI” adoption—and whether growth and margins can walk and chew gum

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Workday heads into tonight’s print wearing two hats: incumbent platform for HCM/Financials and test case for how “agentic AI” gets packaged, priced, and adopted in core enterprise workflows. That makes the update more than a routine subscription check-in. Investors want proof that AI is moving from demo to dollars without knocking the margin story off course, that backlog growth remains durable into a noisier macro, and that management’s back-half acceleration doesn’t rely on creative optimism. Expectations are deliberately muted—good setup if execution is steady, less forgiving if visibility wobbles.

Start with what the Street will trade first. Consensus looks for revenue around $2.34B (+~12.5% Y/Y) and non-GAAP EPS near $2.11 (+~21% Y/Y). Management previously guided Q2 subscription revenue to ~$2.16B (+~13–13.5% Y/Y) and has flagged cRPO growth in the +15–16% range; checks suggest cRPO lands toward the high end, helped by some deals that slipped from Q1. Full-year guardrails remain the reference point: FY26 subscription revenue $8.8B, non-GAAP operating margin ~28.5%, and professional services ~$700M, with a slightly faster subscription growth cadence in the second half, especially Q4. The nuance here is that guidance is back-weighted, so color on pipeline quality—by region and product family—will matter as much as the headline beat/miss.

Top stories to watch are straightforward. First, AI monetization: last quarter, AI ACV more than doubled year over year and roughly 25–30% of expansions included at least one AI SKU. Any step-up in attach rates or fresh “agentic” use cases in HCM/FINS would argue AI is becoming incremental ACV, not just a value feature. Second, backlog health: investors will look for cRPO at or above the high end and for commentary that push-outs from Q1 indeed converted, with minimal new elongation in U.S. enterprise. Third, mix and geography: field work suggests HCM demand a bit sturdier than Financials, with mid-market and Europe outpacing large U.S. enterprise; confirmation would support the 2H acceleration narrative. Fourth, margin discipline: management has room to “trade growth for margin” if the macro turns, but the preferred path is to sustain high-20s margin while leaning into AI and partner-led delivery. Finally, partner ecosystem and WorkdayGO: more implementation work shifting to partners should depress services growth by design and improve cash conversion; WorkdayGO’s faster deployments (as little as ~60 days) are the mid-market lever that can expand TAM without bloating services.

Q1 provides the measuring stick. Total revenue was $2.24B (+13%), subscription $2.06B (+13%), 12-month cRPO $7.63B (+15.6%), and total subscription backlog $24.62B (+19%) with ~98% gross revenue retention. Non-GAAP operating margin hit 30.2%, aided by efficiencies and partner leverage, while operating cash flow rose 23% to $457M. Product momentum included a new CTO for AI/ML (Peter Bailis), ExtendPro more than doubling year over year, and five industries now above $1B ARR. That’s the baseline you’ll want next to tonight’s numbers to judge Q/Q progress on subscription growth, cRPO, AI attach, and margin cadence.

Key drivers for the stock are a tight cluster. Bookings quality and cRPO will anchor the reaction: mid-teens growth with cleaner linearity beats a penny of EPS every time. AI traction needs to keep inching from narrative to numerator—attach rates, new agent workflows, and early proof that AI lifts suite wins or average deal size. Segment balance matters: if HCM again carries the load, investors will ask when FINS re-accelerates; commentary on verticals (healthcare, SLED, higher ed) and Europe will shape that outlook. Margins and cash are the credibility check: Q1’s 30%+ non-GAAP margin was excellent, but full-year guidance implies reinvestment; investors will parse whether Q1 was a high-water mark or if efficiencies (cloud scale, partner shift) can keep margins hovering near 30% through the year. And services mix should continue drifting to partners—acceptable so long as customer time-to-value shortens and subscription growth doesn’t lean on services capacity.

Risks are familiar. AI-driven productivity can slow seat growth, elongating deals or capping expansions; CIOs remain selective on large app refreshes; and tariff noise plus election-year budgeting can complicate timing in U.S. enterprise and SLED. Offsets are equally clear: a deeper mid-market motion via WorkdayGO, platform extensibility (Extend/ExtendPro), incremental international, and the ability to flex margins and buybacks if multiples compress further. In short, Workday still controls many of its own levers.

What would “good enough” look like after the bell? A print with subscription revenue at or above $2.16B, total revenue around $2.34B, EPS near $2.11, 12-month cRPO closer to +16%, AI attach edging above 30%, and non-GAAP margin stable in the high-20s while reaffirming (or modestly nudging) the full-year framework—especially on cash flow—should keep the 2H setup intact. It wouldn’t qualify as a “blowout,” but it would tighten the link between AI narrative and ACV, validate backlog resilience, and leave the company room to raise into year-end if macro allows.

Bottom line: tonight is less about pyrotechnics and more about durability—mid-teens backlog growth, visible second-half acceleration, and tangible AI attach alongside disciplined margins. If Workday delivers that mix, it remains a front-row play on agentic AI for the back office rather than a passenger hoping the cycle does the heavy lifting.