What Happened?

Shares of enterprise software company Workday (NASDAQ: WDAY) jumped 8% in the morning session after activist investor Elliott Management disclosed a more than $2 billion stake and praised the company's leadership. 

In an unusual move for an activist, Elliott lauded CEO Carl Eschenbach and his team for their substantial progress. This vote of confidence was paired with Workday's own announcement of a planned $5 billion stock buyback program, signaling belief in its long-term growth. Fueling the optimism, the company also entered into a definitive agreement to acquire AI firm Sana for approximately $1.1 billion. The acquisition was aimed at integrating next-generation AI tools into Workday's platform. These positive developments prompted multiple Wall Street analysts, including those at Guggenheim and Piper Sandler, to upgrade their ratings on the stock.

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What Is The Market Telling Us

Workday’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 26 days ago when the stock dropped 3.6% on the news that the company reported second-quarter results that, while beating profit estimates, failed to impress on the top line. The finance and HR software provider reported calendar second-quarter revenue of $2.35 billion, up 12.6% year over year, which was in line with Wall Street's expectations. Adjusted earnings per share came in at $2.21, beating the consensus estimate of $2.12. Despite the profit beat, the market reacted negatively, likely because the revenue figure merely met, rather than decisively surpassed, expectations. Investors may have also been concerned about slowing growth, as the 12.6% revenue increase represents a deceleration from the company's 16.4% compounded annual growth rate over the last three years. The overall results were seen as underwhelming, failing to provide the strong positive surprise needed to boost the stock.

Workday is down 6.9% since the beginning of the year, and at $234.56 per share, it is trading 16.2% below its 52-week high of $279.91 from December 2024. Investors who bought $1,000 worth of Workday’s shares 5 years ago would now be looking at an investment worth $1,154.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.