Jared Sleeper
Partner & Head of Software at Avenir, Startup Investing
Workday at 3x sales is a travesty for a business of its quality, implying the market expects management to destroy value through poor capital allocation on top of AI fears. It could likely raise margins toward 30% without much customer impact, given bloat and complacency; the same factors that make it easy to catch up also make it easy to run more profitably. Venture valuations like Rippling's make more sense with Workday at 6-8x sales. x.com x.com x.comÂ
Workday at 3x ARR is too cheap for a blue-chip system of record, with 97% gross retention and over 50% share of Fortune 500 HCM, while AI threats are likely years away. Implementation stays labor-heavy, and AI may not justify ripping out cloud-native HCM and ERP, giving Workday time to monetize its data moat; AI ARR tops $400 million, doubling. The bear case is cheaper implementation inviting Oracle, SAP, Rippling, Deel and AI-native ERP rivals. Slowing growth is fine at this price. x.com x.com x.com x.com x.comÂ
Workday looks undervalued, with multiple valuation models putting intrinsic value near $165, a 15-16% discount, despite fears that AI will disrupt SaaS and weak enterprise software guidance from IBM. Its AI agents run at enterprise scale for over 4,000 clients, its 12-month subscription backlog grew more than 15%, and non-GAAP operating margin widened to 31.8% as management raised full-year profit guidance. x.comÂ
Workday has 61% upside, according to a bot's model. x.comÂ
Workday's Q2 was totally fine, and the business is steadier than the bearish narrative implied. Growth relies on upselling a mature HCM and finance base, giving about 10-12% revenue growth, while margins have plenty of room to rise from 14% GAAP. AI is only 6% of revenue, so the business is unlikely to change much. The real risk is big companies shifting spending to hotter AI tools such as Claude. A sale anywhere below $250 would be insulting to shareholders, and 20x earnings power is not crazy. … Show more
ServiceNow's costs are rising far faster than revenue without the RPO acceleration management promised. Q3 revenue rose 21%, while total cost of revenue climbed 56% and net income fell 45%; stock compensation appears to be using about half of free cash flow. The selloff looks deserved, though the shares are now closer to fair value. Sustainable margins and measurable returns remain the test. x.com x.com x.com x.com x.com x.comÂ
Workday at about 3x trailing price-to-sales is about as close to a floor as the stock is likely to get. Its stock-based compensation is legitimately comical, a concern @WaterworldCapi1 also raised, but the valuation already looks floor-ish. x.comÂ
Workday is exposed because Anthropic has declared war on the enterprise: it hired Workday's CTO, who left after 11 months, and then posted that it is building its own Workday. AI got better and Anthropic started shipping like crazy, so buying the dip looks misguided. x.com x.com x.comÂ
Some software stocks had gotten stupid cheap, including monday.com, Wix, Cellebrite, Adobe, Salesforce and Workday, which makes the sector's rebound welcome. x.com x.comÂ
AI is forcing a repricing of the enterprise software business model, and for ServiceNow and SAP the reset is not finished. Claude Managed Agents eased production AI deployment, ServiceNow's AI bundling raised monetization questions, and SAP warned of short-term pain like its cloud-migration margin squeeze. Multiples compress before new economics are understood, and most software still trades at a premium on GAAP P/E and EV/FCF ex-stock comp. Workday at 1.7x revenue hints at a floor. x.comÂ
Workday's problem is not vibe coding but fundamentals that have deteriorated since 2022. It spends 35% of revenue on R&D yet produces no products or features that drive growth, while spending heavily on acquisitions. @CapitalObserver notes it has nearly 15% short interest despite a forward free cash flow yield above 5%. x.comÂ
Software stocks probably have a floor as results challenge fears that AI agents will displace them. Since the June 22 momentum unwind, IGV is up 25% and the SOX index down 22%. Atlassian and Salesforce jumped on solid results, plus an Anthropic deal for Salesforce, and possible Silver Lake interest lifted Workday. A new bullish twist says agents will use software tools 10-100x more than humans. Whether fundamentals back the rally is still open; a likely Fed hike and weak September are risks. … Show more
