Workday WDAY: Undervalued by 25%, Offers Long Growth Runway

Workday WDAY is an undervalued stock with a long growth runway. The company has a wide economic moat due to high switching costs for its cloud-based human capital management and financial management software. Its agentic artificial intelligence initiatives are gaining traction, and customers are in the early stages of adoption. The stock trades 25% below the fair value estimate of $300 and is one of Morningstar's Best Tech Stocks to Buy.

Workday Inc. (WDAY), a leader in cloud-based human capital management and financial management software, has flown beneath the radar of many investors. Despite underperforming the market over the past five years, the stock appears to be undervalued, trading 25% below Morningstar's fair value estimate of $300 [1]. The company's strong economic moat, driven by high switching costs, and its growing AI initiatives present a compelling case for investors.

Workday's cloud-native enterprise systems offer a superior user experience and reduced total cost of ownership, allowing it to take share from competitors. The company's agentic AI initiatives, with over 60% of clients leveraging its Workday Illuminate AI platform, are gaining traction [1]. This early adoption of AI suggests a long growth runway for Workday's AI offerings.

The company's wide economic moat is supported by its high gross and net retention rates, which have remained over 95% and 100% respectively for over seven years [1]. The high switching costs of changing a platform provider, typically a yearslong project costing millions of dollars, further solidify Workday's position in the market.

Workday's financial management platform is also expanding, offering a full-suite experience for customers. The company's ecosystem, while still in the early stages of buildout, is expected to grow with the help of third-party partners [1]. Furthermore, Workday's partnership with IT organizations globally is bringing its products to key international markets, such as Japan and Europe [1].

However, Workday is not without risks. As a relatively new entrant to the enterprise resource planning market, it faces uncertainty regarding its revenue growth trajectory and final margin profile. The company is also subject to the overall dynamics of the labor market and industry-specific workforce headwinds [1].

In a recent acquisition, Francisco Partners, a major global investment firm, announced plans to acquire Elite, a legal technology company that specializes in financial management and business operations. This acquisition will provide Elite with a new financial partner to help it continue to drive product innovation and growth [2]. Elite's cloud-based platform for large law firms positions it for long-term growth, and Francisco Partners' extensive legal software and payments expertise will likely accelerate this growth.

In conclusion, Workday appears to be an undervalued stock with a long growth runway. Its strong economic moat, growing AI initiatives, and expanding ecosystem present a compelling case for investors. However, the company's early stage in the market and subjectivity to labor market dynamics introduce risks that investors should consider.

References:
[1] https://www.morningstar.com/stocks/undervalued-by-25-this-stock-buy-has-long-growth-runway
[2] https://www.lawnext.com/2025/08/breaking-elite-a-financial-management-platform-for-larger-firms-has-been-acquired-by-francisco-partners.html