Workday (WDAY) shares have been in a sharp uptrend since late June, a rally that Deutsche Bank says should make disciplined investors begin taking profits. The firm’s lead analyst Brad Zelnick downgraded WDAY to “Hold,” although his $220 price target still signals potential upside of more than 15% from here.
Versus its June low, Workday stock is up about 70% at the time of writing.
What Made Deutsche Bank Downgrade Workday Stock?
Zelnick’s downgrade is primarily based on valuation concerns rather than operational decay.
“WDAY stock reflects a more balanced risk/reward profile following its substantial re-rating over the last several months,” he told clients in a research note.
The cloud company is currently trading at more than 38x forward earnings, which makes it much more expensive to own than its enterprise software peers, including Salesforce (CRM) and Adobe (ADBE).
And it’s not like Workday pays a healthy dividend to offset the valuation concerns.
Crucially, the Nasdaq-listed firm has a history of losing more than 3.5% on average in September, a seasonal pattern that further dulls its near-term appeal.
AI Disruption Remains an Overhang for WDAY Shares
Part of Workday shares’ recent surge came from market chatter that private equity firm Silver Lake is interested in acquiring the firm. However, the company could reverse those gains if discussions stall and an official deal doesn’t materialize.
Meanwhile, experts continue to debate the long-term impact and durability of artificial intelligence (AI) applications within enterprise software.
While co-founder Aneel Bhusri’s return to the CEO role has helped boost customer and employee morale, adoption of Workday’s AI products and automated agents remains in its early stages.
Deutsche Bank expects institutional investors will demand clearer, tangible evidence of sustainable net revenue contribution from AI integrations before assigning higher standalone valuation multiples to the stock.
How Wall Street Recommends Playing Workday
Note that other Wall Street analysts no longer share Zelnick’s bullish view of Workday.
While the consensus rating on WDAY shares remains at “Moderate Buy,” the mean price objective of about $177 suggests potential downside of nearly 8% from here.
