Workday (WDAY) just posted its best first quarter of new ACV (annual contract value) growth in five years, and CEO Aneel Bhusri says AI is changing the economics of enterprise software in a way that could benefit the company directly.
“If FTE (full-time employee) count does go down, it’s being replaced by AI replacing labor, not software right now,” Bhusri said on the earnings call. “And as long as we continue to execute, we’re a beneficiary of the shift to agentic work.”
That’s a bold framing, and the numbers are starting to back it up.
Workday says AI is driving bigger deals inside the installed base
Workday reported that for Q1, more than 25% of new expansion ACV included AI, and those deals were more than 50% larger on average than expansions without it.
Bhusri made a remark on the earnings call that stood out: He said he’d love to keep headcount as close to flat as possible for the year because Workday is already seeing productivity benefits from its own AI tools across R&D, customer success, and go-to-market.
“That’s different than what my view was coming in three months ago,” he said. Workday is also expected to continue expanding its workforce in India, according to Reuters.
Workday’s agentic AI new ACV grew more than 200% year over year in Q1, and AI ARR is now approaching $500 million. More than 4,000 customers are using at least one organically developed Workday agent.
The more customers use AI to make decisions across payroll, workforce, and finance data, the deeper Workday sits inside the operating core of the enterprise. Eschenbach has tied that advantage to Workday’s “world model,” which draws on proprietary enterprise workflow data.
Workday is growing revenue per customer while adding new logos. Expansions drove roughly 60% of subscription revenue growth in the quarter, with customers like Queensland University of Technology, Rakuten Group, and Bank OZK all deepening their Workday relationships. Twelve-month subscription backlog grew 15.5%, and gross revenue retention held at 97%.
Margins rose even as AI investment climbed
Workday’s earnings profile improved even as it kept investing in AI. In Q1, non-GAAP operating margin reached 31.8%, and management raised its FY2027 non-GAAP operating margin target to 30.5%.
That move matters because investors have pressed enterprise software companies to prove that AI can drive growth without crushing profitability.
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The test now is whether Q1 was a turning point or a strong but isolated quarter. Bhusri was careful to say one quarter doesn’t make a year.
But with organic agents gaining traction, Flex Credits monetization building, and margins moving in the right direction, Workday is making a credible case that AI is lifting the business from multiple directions at once.
New agents are expanding Workday’s addressable market
One of the more interesting signals from the call was how aggressively Workday is using AI to move into adjacent markets. At the Sana AI Summit in New York, the company unveiled two new agents.
Sana Travel Agent handles bookings, receipts, policy checks, and expenses in a single conversational experience. Sana for IT Service Management automates IT service requests tied to employee lifecycle events such as onboarding and offboarding.
Workday didn’t do travel or IT service management before. Now it does, because the underlying data were already there.
“AI makes us boundaryless,” Product and Technology President Gerrit Kazmaier said. Bhusri was equally direct: “AI resets competitive boundaries, and we can make bets in a bunch of new markets.”
The deployment agent is also removing one of Workday’s biggest growth barriers. It’s already delivering an estimated 30% reduction in implementation hours and costs on current projects, with a target of 50% on new ones.
What could drive more upside for Workday
- AI agents expand deal sizes across existing customers and increase revenue per deployment.
- Workday’s payroll and finance data improve AI outputs and strengthen switching costs.
- Agent adoption pushes Workday deeper into daily workflows and increases recurring revenue potential.
- AI revenue scales alongside margin discipline, supporting higher earnings estimates and valuation multiples.
- The platform expands from recordkeeping into workflow execution across HR, finance, and automation.
What could pressure WDAY stock
- AI adoption remains limited to pilot programs and slows larger enterprise rollouts.
- Customers use AI features without paying meaningfully more for them (AI investment becomes survival and hurts margins/multiple rather than growing profits).
- AI infrastructure and go-to-market costs grow faster than related revenue.
- Competing software suites bundle similar automation into broader platforms.
- Slower AI attachment rates reduce expansion revenue across the installed base.
Key takeaways for Workday
Workday’s AI strategy is starting to drive real business results. AI tools are helping expand deal sizes, increase monetization across existing customers, and strengthen the value of Workday’s HR and finance data.
Investors will watch for deeper AI adoption, stronger backlog growth, and proof that agent products can become a durable recurring revenue stream.
