Workday delivered another quarter of double-digit revenue growth as demand for its cloud-based human resources and financial management software remained resilient and the company increasingly positioned artificial intelligence as a contributor to enterprise purchasing decisions. For the fiscal second quarter ended July 31, 2026, Workday reported total revenue of $2.649 billion, an increase of 12.8% from $2.348 billion a year earlier.

Subscription services, the core of Workday’s recurring-revenue model, generated $2.471 billion, up 13.9% from $2.169 billion in the prior-year period. Professional services revenue was approximately $178 million, little changed from $179 million a year earlier. The composition of the quarter therefore continued to emphasize recurring subscription sales rather than implementation and consulting activity, a mix that remains central to the company’s long-term economics.

The top-line result was modestly above Wall Street expectations. Analysts surveyed by LSEG had expected total quarterly revenue of roughly $2.64 billion, according to Reuters. The relatively narrow beat nevertheless came at an important point for enterprise application companies, which are facing investor scrutiny over whether generative and agentic AI will strengthen established software platforms or reduce the value of conventional software subscriptions.

Workday is arguing that AI is becoming an expansion driver rather than a source of displacement. Co-founder, chief executive and chair Aneel Bhusri said AI accounted for more than 25% of new annual contract value during the quarter. More than 5,500 Workday customers are now using at least one of the company’s internally developed AI agents, an increase of more than 35% from the previous quarter.

The company also said AI products are increasingly being purchased alongside broader Workday deployments. On the earnings call, Chief Commercial Officer Rob Enslin said more than half of Workday’s net new customer wins during the quarter signed up for one or more AI solutions. That relationship matters because Workday’s ability to monetize AI will depend not only on selling standalone capabilities but on using those capabilities to reinforce adoption of its core human capital management, finance and related enterprise applications.

The quarterly results showed stronger profitability alongside revenue growth. GAAP operating income increased to $313 million, or 11.8% of revenue, from $248 million, or 10.6%, in the year-earlier quarter. Non-GAAP operating income rose to $824 million from $680 million, while the corresponding operating margin widened to 31.1% from 29.0%. The expansion provides evidence that Workday is extracting greater operating leverage even as it continues to invest in AI development, platform functionality and sales capacity.

Diluted GAAP net income per share was $2.57, compared with $0.84 in the same period last year. The current-quarter figure included a tax benefit equivalent to $1.52 per share related to an intra-entity transfer of intellectual property rights associated with an internal legal-entity restructuring, making the year-over-year GAAP comparison less representative of underlying operating performance. On a non-GAAP basis, diluted earnings were $2.75 per share, up from $2.21 a year earlier.

Workday’s backlog figures offered another indication of the durability of contracted subscription revenue. Twelve-month subscription revenue backlog, a closely watched indicator of revenue expected to be recognized over the coming year, reached $9.034 billion. That represented a 14.2% increase from the prior-year period and was slightly faster than reported subscription revenue growth during the quarter.

Total subscription revenue backlog was $27.403 billion, up 8.0% year over year. The difference between growth in the 12-month backlog and total backlog suggests that near-term contracted revenue continues to expand at a stronger rate than the longer-dated commitment base. For investors evaluating Workday’s growth trajectory, the 12-month measure will remain particularly important because it provides visibility into the revenue that should convert into reported subscription sales over the next several quarters.

Cash generation was weaker than in the prior-year quarter despite higher operating profit. Operating cash flow declined to $520 million from $616 million, while free cash flow decreased to $460 million from $588 million. The decline presents a counterpoint to the margin expansion and will keep attention on working-capital movements, investment requirements and the relationship between Workday’s accounting profitability and cash conversion.

Workday ended July with $3.403 billion in cash, cash equivalents and marketable securities. At the same time, the company continued returning substantial capital to shareholders. It repurchased approximately 9.8 million Class A shares for about $1.3 billion during the quarter. The board also authorized an open-ended program allowing the purchase of up to an additional $4 billion of Class A shares, expanding the company’s capacity to offset dilution and reduce outstanding equity when management considers repurchases attractive.

The updated outlook kept Workday on course for double-digit subscription growth through fiscal 2027, although management is signaling some moderation from the second-quarter pace. For the fiscal third quarter ending Oct. 31, Workday expects subscription revenue of $2.515 billion, representing approximately 12% year-over-year growth. It expects a third-quarter non-GAAP operating margin of 30.0%.

For the full fiscal year ending Jan. 31, 2027, Workday now expects subscription revenue between $9.940 billion and $9.950 billion, equivalent to approximately 13% growth. The company also increased its fiscal 2027 non-GAAP operating margin forecast to 31.0%, reinforcing management’s message that investment in AI and new platform capabilities can be combined with further improvements in operating efficiency.

The margin outlook is significant because the enterprise software sector has increasingly been judged on profitable growth rather than revenue expansion alone. Large software companies spent heavily during earlier phases of cloud adoption to acquire customers and build infrastructure. With many cloud markets now mature, investors have placed greater weight on operating leverage, free cash flow and disciplined capital allocation. Workday’s ability to expand non-GAAP margin while maintaining low-double-digit subscription growth is therefore central to the earnings case.

Management’s longer-term comments also indicated that Workday expects subscription growth to moderate gradually. Chief Financial Officer Zane Rowe said during the earnings call that fiscal 2028 subscription revenue growth is expected to be roughly 11%, broadly consistent with the growth rate anticipated during the second half of fiscal 2027. That outlook makes expansion within the installed customer base, international growth and AI monetization increasingly important as Workday grows from a larger revenue base.

The AI strategy has become particularly important because investors have questioned whether new AI systems could weaken traditional software-as-a-service businesses by allowing companies to automate workflows without purchasing as many conventional applications or user licenses. Workday is attempting to counter that concern by embedding agents directly into the platform where customers already store sensitive employee and financial information.

The company has introduced AI agents and related tools across financial auditing, development, employee workflows and enterprise decision-making. It recently made its Workday Learning product powered by Sana generally available and introduced Adaptive Decision Intelligence, which is designed to allow finance and operations teams to query information and model business scenarios using natural language. Workday has also announced tools for verifying and monitoring AI agents that operate inside enterprise systems.

Management is emphasizing governance and access to proprietary business context as competitive advantages. Human resources and finance software contains sensitive, highly structured corporate information, and companies deploying autonomous or semi-autonomous agents must control what those systems can access and what actions they are allowed to perform. Workday’s strategy is to connect AI directly to established permissions, workflows and enterprise data rather than treating AI as a separate productivity layer.

Commercial activity during the quarter extended beyond AI. Workday said it added customers including BWX Technologies, Guess, KPMG and S-E-B, while expanding relationships with existing customers such as Caterpillar, Delivery Hero, Lithia & Driveway, Merck and Novartis. Expansion within existing accounts is particularly valuable for a subscription software company because additional modules and capabilities can increase revenue without requiring an entirely new customer acquisition process.

The company is also extending its technology ecosystem. Workday has announced deeper integrations with Amazon Web Services and Google Cloud, including plans to connect Workday data and agents with external cloud and AI services. Such partnerships reflect a broader shift in enterprise software toward interoperability, where customers increasingly expect corporate data, AI models and business applications from multiple providers to operate together rather than remain inside isolated platforms.

The market response highlighted the conflicting signals investors are weighing. Workday shares initially fell after the results as investors assessed guidance that was relatively close to expectations, but sentiment improved as the market absorbed management’s comments on AI adoption and new contract activity. Reuters reported that the stock recovered from an initial after-hours decline, while shares subsequently rose during the following trading session.

The reaction underscores the higher bar confronting mature cloud software companies. A modest earnings or revenue beat may no longer be sufficient to produce a sustained positive response when investors are focused on future subscription growth, AI disruption and the cost of maintaining technological leadership. Workday’s second-quarter figures were solid on conventional earnings measures, but the longer-term valuation debate increasingly depends on whether its AI strategy can maintain or improve growth rates rather than merely defend the existing business.

Several indicators from the quarter support management’s argument. Subscription revenue growth remained close to 14%, 12-month backlog grew slightly faster, operating margins expanded, and AI represented more than one-quarter of new annual contract value. Those measures suggest AI is already influencing commercial activity rather than remaining primarily a research and product-development expense.

At the same time, the outlook shows why investors are unlikely to consider the transition complete. Third-quarter subscription revenue growth is expected to slow to about 12%, and management’s preliminary view for fiscal 2028 points to growth near 11%. Total subscription backlog growth of 8% also trails the near-term backlog rate. Workday will therefore need to demonstrate that AI can increase deal sizes, improve customer retention, support new customer acquisition or create additional paid product categories strongly enough to influence its longer-term growth profile.

Cash flow represents another area to monitor. Free cash flow fell year over year even as non-GAAP operating profit increased substantially. A single quarter does not establish a trend, but investors focused on software-sector cash generation will watch whether free cash flow growth reconnects with reported revenue and operating-margin expansion over subsequent periods, particularly as Workday balances AI spending with substantial share repurchases.

For now, the fiscal second-quarter results leave Workday with a relatively stable earnings profile: recurring revenue is expanding at a double-digit rate, profitability is improving, contracted near-term revenue remains healthy and management has maintained a full-year outlook consistent with continued growth. The emerging variable is whether AI can turn those characteristics into a stronger long-term trajectory.

The next several quarters will provide a clearer test. Workday must convert its growing number of AI users into sustained contract value while preserving the reliability and governance expected from financial and human-resources systems. If AI adoption continues to support customer expansion while margins rise, Workday could strengthen the argument that established enterprise application providers are positioned to benefit from the AI transition. If growth continues to decelerate despite rising AI usage, investors may instead conclude that the new products are helping defend the existing franchise without materially changing its underlying growth rate.