Workday: A Strategic Buy Amid Undervaluation and AI-Driven Growth Surge

Workday (WDAY) stands at a pivotal moment. Despite a recent dip in its stock price, the company's Q1 2025 financial results, margin improvements, and transformative AI investments underscore its potential for outsized returns. With a robust $1 billion buyback program, a fortress balance sheet, and secular tailwinds in enterprise SaaS, now is the time to position for long-term upside. Let's dissect the data.

Financial Fortitude: Growth and Margin Expansion

Workday delivered 18.1% year-over-year revenue growth in Q1 2025, hitting $1.99 billion, with subscription revenue surging 18.8% to $1.815 billion. Even more compelling, non-GAAP operating margins expanded to 25.9%, a 240 basis point improvement from the prior year. This margin discipline is no accident: Workday is executing its cost management strategy flawlessly, with operating cash flow up 34% year-over-year in Q2 to $571 million.

The company's full-year guidance remains aggressive, with $7.7 billion in subscription revenue and a 25.25% non-GAAP operating margin target. Even short-term volatility—driven by macroeconomic uncertainty—pales against Workday's $21.58 billion total subscription revenue backlog, up 20.9% year-over-year. This backlog is the lifeblood of recurring revenue, ensuring visibility into future growth.

Undervalued at 8.6x P/S: A Rare Buying Opportunity

At $272.07 per share as of May 22, 2025, Workday trades at a price-to-sales (P/S) ratio of 8.66, well below its five-year average of 10.24 and a stark contrast to its 2021 peak of 15.44. When stacked against peers like Salesforce (P/S 7.87) and Oracle (P/S 9.19), Workday's valuation appears compelling.

The market is overlooking Workday's AI-driven differentiation and leadership in the $30 billion ERP SaaS market. Gartner recently ranked Workday as the #1 ERP SaaS provider with a 19.6% market share, and its AI Marketplace—a platform integrating machine learning models into HR and finance workflows—is already attracting Fortune 500 clients.

AI: The Catalyst for Long-Term Dominance

Workday isn't just a SaaS company; it's an AI pioneer. Its AI Marketplace, launched in 2024, allows customers to deploy pre-built AI models for tasks like talent analytics and expense management. Partnerships with AWS and Google Cloud amplify this capability, enabling Workday to deliver real-time predictive insights at scale.

Consider the HiredScore acquisition: this AI-driven talent assessment tool now integrates into Workday's HR platform, reducing hiring bias and improving retention. Forrester recently named Workday a Leader in its ERP Wave, citing its “AI-first vision.”

Buybacks and Balance Sheet: A Safety Net for Investors

Workday has returned $443 million to shareholders via buybacks in the first half of fiscal 2025 alone, with $1 billion allocated for the year. Backed by $7.37 billion in cash, the company can weather near-term macro headwinds while scaling AI investments. This financial flexibility is a rare luxury in today's uncertain market.

Addressing Near-Term Concerns

Critics will point to Workday's 16.7% revenue growth in Q2—a slight deceleration from Q1's 18.1%—and mention “cautious sales dynamics.” But this misses the bigger picture: Workday is transitioning from a high-growth startup to a $7.7 billion SaaS giant, and its focus on margin expansion (from 23.5% to 25.9% non-GAAP in a year) is a deliberate trade-off for sustained profitability.

Moreover, Workday's Fortune 500 entry and 70 million users under contract signal enterprise adoption at scale. With 2,000 customers on its financial management platform, Workday is no longer a niche player—it's a mission-critical system for global corporations.

Why Now?

The stock's current valuation ignores Workday's AI-driven moat, margin improvements, and backlog resilience. At 8.6x P/S, it's a fraction of its peak valuation, offering a margin of safety even if growth slows modestly.

Meanwhile, peers like Snowflake (P/S 12.4) and Intuit (P/S 10.7) trade at premiums, yet Workday's AI-powered ERP stack is far more defensible. The $1 billion buyback and fortress balance sheet add further downside protection.

Final Call: Buy Workday Now

Workday is a compounder in disguise. Its AI investments, margin discipline, and fortress balance sheet position it to dominate the $30 billion ERP SaaS market for decades. At 8.6x P/S, this is a rare chance to buy a leader at a discount.

Investors who wait for “perfect clarity” will miss the boat. The $270 level is a generational entry point—act now before the market catches up to Workday's AI-powered future.

This article is for informational purposes only. Investors should conduct their own due diligence before making decisions.