Evercore downgraded Workday to an In Line rating and slashed its price target by $40 to $160 after the HR software company's fiscal 2027 outlook fell short of expectations. Workday shares tumbled 9% in premarket trading Wednesday following the company's forecast of subscription revenue between $9.925 billion and $9.950 billion, below the $10 billion analysts had projected.

Despite posting better-than-expected fourth-quarter results with earnings of $2.47 per share versus estimates of $2.32, Workday's guidance signaled slower growth ahead. The company expects fiscal 2027 adjusted operating margin of about 30%, down from a prior target of approximately 35% for fiscal 2028. Evercore analysts noted that increased AI spending is reducing near-term margin expansion opportunities, even as Workday generated over $100 million in new annual contract value from AI products in the fourth quarter.

For the fiscal first quarter ending April 30, Workday projects subscription revenue of $2.335 billion, up 13%, with a non-GAAP operating margin of 30.5%. Management characterized timing delays in some federal, SLED, and commercial deals as isolated issues rather than pipeline deterioration. The brokerage's downgrade reflects concerns about Workday's ability to meet previous margin targets while investing heavily in AI capabilities, suggesting investors should brace for continued volatility as the company navigates this transition period.