In short: Same illustration: −39.6% in the AI panic, then +50% from its lows with no change in fundamentals. No rating.
In short: Referenced as the more informative of the two software datapoints because of who is buying: "there was the news out that Silver Lake was looking to acquire them… if private equity is looking to acquire a company… they've got to typically hold these companies 7 to 10 years… and they have to believe that there's some terminal value." At "like 50 billion" the diligence bar is far above an equity investor's — "and so I thought that marked the bottom in software to some degree."
Workday sells the software companies use to run HR and finance — a "system of record," one of the three software categories Niles thinks is structurally defensible because ripping it out is enormously disruptive.
What makes it the more interesting of his two software datapoints is who is buying, not what the stock did. Silver Lake, a private-equity firm, is reported to be pursuing it at around $50 billion. Private equity buys with borrowed money and typically holds for seven to ten years before selling, which means the buyer has to believe the business is still valuable a decade out — and has to service that debt with 30-year Treasury yields at their highest since 2007.
Niles reads that as a much higher evidentiary bar than a public shareholder clears: a stock investor can change his mind in an afternoon, while a buyout firm is locked in. "And so I thought that marked the bottom in software to some degree."
33:38And if private equity is looking to acquire a company, you go, "Wow, they've got to typically hold these companies 7 to 10 years. They're using some debt and interest rates, obviously 30-year treasuries are at the highest levels since 2007, and they have to believe that there's some terminal value to this out 7 to 10 years.
In short: Grouped with Salesforce in the application-software recalibration — "obviously we've seen an acquisition potentially of Workday," i.e. what happens to low-growth application software once the multiple resets.
4:50And once you get into that five to 15% growth area, it's really hard to trade on revenue multiples and non-GAAP EPS and it's really hard to dream the dream. So I think with the Salesforce, Workday, obviously we've seen an acquisition potentially of Workday, but I think the initial crash was kind of coming back down to earth and it wasn't actually pricing that AI was going to disrupt the entire business.
In short: Exhibit two, and the one where the bid mattered more than the print. "On August 13th, Workday rallied 18% on the news that private equity firm Silver Lake might be pursuing an acquisition, which probably put a temporary floor underneath software. Workday was also supposed to be in the AI crosshairs, and private equity has higher bars to clear given their use of leverage and holding period than the typical investor." Then, on August 27th, "Workday reported results which were good enough, but arguably acquisition prospects drove more of the stock reaction to positive 6% the next day." The reasoning is the useful part: a leveraged buyer underwriting a five-to-seven-year hold is making a stronger statement about terminal value than a mutual fund adding on a beat.
Workday sells the software companies use to manage employees — payroll, hiring, records. Another obvious AI victim on paper, since the value is supposedly tied to headcount.
It rose 18% on 13 August, not on results but on reports that Silver Lake, a large technology private-equity firm, might buy it. Singh's reasoning about why that mattered is the transferable part: "private equity has higher bars to clear given their use of leverage and holding period than the typical investor." A buyout firm borrowing money to own a business for five to seven years has to believe the cash flows will still be there at the end of that period and will service the debt throughout. A fund manager adding on a good quarter has made a much weaker statement.
So a credible leveraged bid functions as an independent underwriting of terminal value — which is exactly what AI fear had removed from the sector. It "probably put a temporary floor underneath software." When Workday then reported on 27 August, results were "good enough," but Singh notes that the acquisition prospect, not the numbers, drove the 6% move.
Full passage: premium transcript (PDF).
In short: AI mix jumps — adoption is real, the meter isn't running yet. Q2 revenue +13% Y/Y to $2.65B ($10M beat) with non-GAAP EPS of $2.75 ($0.14 beat); subscription revenue +14% to $2.47B and operating margin slightly expanded, ahead of expectations. The AI traction "became much more tangible": AI products generated more than $100M in new ACV, over 25% of all new ACV in the quarter; more than 5,500 customers now use at least one Workday agent, up 35% Q/Q; and AI SKUs are approaching $600M in ARR, up more than 200% Y/Y. "The catch is the timing of monetization. Only a little over 200 customers have signed up for Flex Credits, despite thousands already using agents, as Workday is deliberately prioritizing adoption before metering some AI usage" — management still sees Flex Credits as the answer to seat compression but calls it a "delayed gratification" model "whose revenue impact may take months to appear." The core is decelerating underneath: FY27 subscription growth held at ~13% with adjusted operating margin guidance +0.5pp to 31%, but management expects FY28 subscription growth of roughly 11% (with ≥2 points of margin expansion) and total subscription backlog grew only 8% to $27.4B. Bottom Line: "The next test is whether today's AI adoption turns into enough consumption revenue to offset that deceleration."
Workday runs the HR and finance systems of large companies, charged per employee. That pricing model is the key to this quarter, because it is exactly what AI threatens: if AI agents do work that employees used to do, a vendor charging per employee has a shrinking bill. The industry term is "seat compression."
The AI adoption numbers are genuinely impressive. AI products drove over $100 million of new contract value — more than a quarter of everything Workday sold this quarter — and more than 5,500 customers now run at least one Workday agent, up 35% in three months. AI product lines are approaching $600 million of recurring revenue, triple a year ago.
Now the catch, and it is a big one. Workday's answer to seat compression is "Flex Credits," a system for charging by usage instead of headcount. Just over 200 customers have signed up for it — against those 5,500 using agents. Fewer than 4% of the users are on the meter. Workday is doing this deliberately, prioritising getting agents adopted before it starts charging for them, and management calls it a "delayed gratification" model. That is a reasonable strategy and a real risk: the giveaway is certain, the later payment is not.
Meanwhile the core business is slowing in the places that show the future first. Total contracted backlog grew only 8% — well below the 13–14% revenue growth being reported now — and management guided next year's subscription growth to about 11%. It offset that by promising higher margins. A company guiding growth down and margin up is telling you which number it intends to defend. That combination — impressive adoption, minimal monetization, decelerating backlog — is why the view is neutral rather than positive. Analysis, not a recommendation.
In short: Not a position but a sector-floor signal: "the Workday software LBO, which could be one of the biggest software LBOs of all time. Silver Lake, which is a premier private equity firm with over 100 billion in assets, focused on tech is potentially looking to take over the software company, likely putting a floor on the software sector." Context for the bounce: "prior to the 18% move higher, Workday had actually been down 20% on the year versus the IGV ETF, which was down 6% and the S&P up 20%." Deck page 42.
Silver Lake, a technology-focused private equity firm managing over $100 billion, is reportedly looking at taking Workday private — potentially one of the largest software buyouts ever attempted. The shares jumped 18%.
Singh's interest is less in owning Workday than in what the bid means for everything around it. Software stocks have been sold all year on the fear that AI will erode their revenue: Workday was down 20% on the year while the market was up 20%. A credible buyer willing to pay cash for a large software company sets a visible floor — evidence that someone with $100 billion thinks these businesses are worth more than the market says.
Full passage: premium transcript (PDF).
In short: Cole — "SaaS destruction" group. A former darling growth SaaS name in the cohort "getting crushed" — the software-as-a-service world unwinding (only the big-cap hyperscalers haven't underperformed).
17:28apploving — constellations — constellation software in Canada open text is another you know kind of out there so I say that because that world is getting crushed — and those were the former darling quality growth stories and the only place that really hasn't underperformed is the big cap tech or what we call internally the hyperscalers okay now what do we liken this to and this will be to Bill's point this will be what my presentation's on tomorrow in effect I think we think of the hyperscalers like the telecoms of the late 90s. So in
In short: A software-ROS constituent "leading the way" down — named as a textbook Rollover Syndrome example in the IGV basket.
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