Workday Lifts Margin Forecast as AI Agent Use Doubles

What happened

Workday reported fiscal first-quarter results ending April 30 that exceeded analyst expectations. Total revenue reached $2.54 billion, with subscription revenue climbing 14.3% to $2.35 billion. Net income rose sharply to $222 million (87 cents per share), up from $68 million one year earlier. Management raised the full-year adjusted operating margin target to 30.5%, up from the previous 30% forecast, while maintaining its 12% to 13% growth outlook for subscription revenue. The company also reported that the number of customers using its AI agents more than doubled from the prior quarter, reaching over 4,000 clients using at least one agent. Co-founder Aneel Bhusri replaced Carl Eschenbach as CEO during the quarter, framing a renewed focus on innovation and what he calls "Chapter 4" of the company's evolution. Workday also launched Sana for IT Service Management and a Travel Agent product, marking its first formal expansion beyond core HR and finance workflows following the $1.1 billion acquisition of AI firm Sana completed in November.

Why it matters

The margin expansion signals that Workday is controlling costs while investing in new AI products, a balance investors have been watching closely in a software market increasingly divided between AI winners and laggups. Subscription revenue growth-the core health metric for any SaaS business-came in ahead of expectations, suggesting customers are renewing and adding users despite economic uncertainty. More significantly, the doubling of AI agent adoption provides early evidence that Workday's "agentic AI" strategy is translating into customer usage, not just product announcements. If these AI features genuinely reduce time spent on tasks like writing job descriptions, approving payroll changes, or flagging unusual spending, customers are more likely to renew, expand their deployments, or activate additional modules. That usage data matters because investors are demanding proof that AI investments improve renewals and expansions, not just marketing narratives. Workday's entry into IT service management through its new Sana ITSM agent also puts it in direct competition with ServiceNow, challenging the assumption that service management tools must live outside the system of record.

Bigger picture

Workday's results arrive as US software stocks face tougher scrutiny over whether generative AI will enhance or disrupt their business models. The company's shares had fallen 43% year-to-date through the earnings announcement, reflecting investor concern that AI could reduce demand for traditional enterprise software. Across the sector, investors are rewarding firms that show subscription momentum and punishing those that appear vulnerable to AI-driven substitution. Workday's beat buys credibility in this environment, but it also raises the bar: analysts will watch whether AI features improve renewal rates and net revenue retention, not just demo well. The broader ITSM market is reaching an inflection point, with Gartner predicting that 33% of organisations will use agentic AI in IT service management by 2028, and 80% expected to achieve productivity improvements. ServiceNow's recent acquisition of Moveworks and Workday's launch of Sana for ITSM signal that the market for AI-driven employee support is consolidating around platform plays. For buyers, the choice is shifting from selecting best-of-breed tools to deciding whether automation should live inside the system of record or in a dedicated service layer. Workday's native integration argument is compelling for existing customers, but organisations with mature ServiceNow or Ivanti environments face a less straightforward decision.

What to watch

Monitor whether AI agent adoption continues to grow at the same pace in coming quarters, and whether that usage translates into higher net revenue retention and average contract values. Workday generated over $100 million in new annual contract value from AI products in the prior quarter, with ARR from those solutions exceeding $400 million; sustained growth in those figures would confirm monetisation momentum. Watch for updates on the 12 role-based agents moving toward general availability, particularly in HR and finance workflows. Deal cycle length will also matter-management acknowledged that some large enterprise deals, especially in federal, state, and local government and healthcare, are taking longer to close. Whether those pipelines convert in the fiscal second quarter will indicate demand resilience. Finally, track the margin trajectory carefully. Management is prioritising incremental investments in agentic AI, which means margin expansion will slow in the near term. The 30.5% full-year target is the line investors will measure against. Early adopter feedback on Sana for ITSM and the Travel Agent, both launching in the second half of 2026, will also signal whether Workday's platform integration delivers the promised efficiency gains.