Workday (WDAY) shares surged approximately 10% in pre-market trading on Friday, May 22, 2026, following the release of better-than-expected fiscal first-quarter earnings. The stock reached $134.01 at 6:00 a.m. ET, adding $12.16 from Thursday's closing price of $121.85. The rally reflects renewed investor confidence in the cloud software company, which has faced significant headwinds this year amid concerns about the impact of artificial intelligence on its legacy business.
Earnings Highlights
Workday reported revenue of $2.542 billion for the quarter, representing a 13.5% increase year-over-year. Subscription revenue, a key metric for the company, rose 14.3% to $2.354 billion. Non-GAAP diluted earnings per share came in at $2.66, up from $2.23 in the same period last year. The company also raised its full-year adjusted operating margin forecast to 30.5%, up from previous guidance.
CEO Aneel Bhusri, who recently returned to the role, expressed optimism about Workday's position in the AI landscape. "We are ready for this AI moment," Bhusri said during the earnings call. CFO Zane Rowe added that the company will continue "executing on our agentic AI roadmap," signaling a strategic shift toward integrating AI agents into Workday's HR and finance software.
Market Context and AI Concerns
Workday shares had declined more than 43% year-to-date prior to Friday's jump, significantly underperforming the S&P 500 software and services index, which fell about 14% over the same period. Investors had grown wary that AI products from competitors like Anthropic could erode demand for traditional business software. However, the strong quarterly results and AI-focused messaging helped alleviate some of those fears.
Bhusri emphasized the need for Workday to adopt a more startup-like mindset as it rolls out AI agents. According to The Wall Street Journal, Workday plans to launch approximately 15 AI agents this year, targeting areas such as HR, finance, corporate travel, and IT service management. This move positions Workday closer to competitors like ServiceNow and Salesforce, which are also integrating AI into their platforms.
Key Metrics and Forward Outlook
Workday's 12-month subscription revenue backlog grew 15.5% to $8.806 billion, a sign of strong customer retention and pricing power. However, the total subscription revenue backlog of $27.29 billion fell short of analysts' expectations of $28.38 billion, as noted by Barron's. The company maintained its full-year subscription revenue guidance at $9.925 billion to $9.950 billion, leaving some uncertainty about future growth.
Bhusri highlighted that Workday achieved its "best first quarter of new ACV growth in five years," referring to annual contract value, a key metric for expected yearly deal revenue in software. This statement underscored the company's ability to attract new business despite the competitive AI landscape.
Risks and Market Reaction
While the pre-market rally was significant, analysts caution that the rebound may not be sustainable. Risks remain that clients could use AI to reduce software seats or slow new spending, turning the bounce into a temporary relief rally. The lower trading volume in pre-market hours also amplifies price swings, and the stock's performance after the regular market open will be a crucial test of investor sentiment.
U.S. stock markets are scheduled to be closed on Monday, May 25, for Memorial Day, adding a layer of caution as traders assess positions ahead of the long weekend. The Nasdaq's regular trading session runs from 9:30 a.m. to 4:00 p.m. ET, with pre-market activity from 4:00 a.m. to 9:30 a.m.
Conclusion
Workday's strong Q1 results and AI-focused strategy have provided a much-needed boost to the stock, but the company still faces challenges in a rapidly evolving market. The next few trading sessions will reveal whether this rally has lasting power or is merely a short-term relief trade. For now, the return of founder-CEO Bhusri and improved margins offer a cleaner narrative for the company, but the AI disruption narrative remains a key overhang.
