Workday buyout may restore confidence in battered software valuations, analysts say

Workday shares surged nearly 18% on Thursday after Reuters reported exclusive acquisition talks with Silver Lake, lifting the human-resources and financial-management software company’s market value above $51 billion. Analysts and investors said a completed buyout, particularly at a substantial premium, could support battered software valuations by demonstrating continued private-equity confidence in the industry’s prospects. The sector has faced heavy selling this year as artificial-intelligence tools become capable of generating computer code and creating applications, raising concerns that businesses may need fewer traditional software services. “If Silver Lake ultimately takes Workday private at a substantial premium, it would be one of the strongest pieces of evidence yet that the public market has overshot in discounting traditional enterprise software because of AI,” said Brian Mulberry, client portfolio manager at Zacks Investment Research. Strong recent earnings from companies including ServiceNow have reinforced the resilience of providers embedded in essential functions such as human resources, customer relationship management and finance. Replacing these systems can be costly and disruptive, potentially protecting established vendors from rapid displacement. The S&P 500 Software & Services index has risen roughly 25% quarter-to-date. European software stocks rallied on Friday, led by SAP, while U.S. peers Salesforce, Adobe and ServiceNow gained between 1.9% and 4.5% the previous day. Morgan Stanley analysts said a Workday acquisition would validate the view that the company has a “strong moat and large opportunity to automate the back-office that can be unlocked over time.” They added that the report could encourage other potential acquirers, especially financial sponsors, to regain confidence in software investing. That could create further upward pressure on software stocks if short sellers retreat and investors conclude that these businesses have become too cheap relative to their future value. However, the transaction remains prospective, leaving any valuation recovery dependent on Silver Lake’s decision and continued evidence that enterprise software can withstand AI disruption.