Workday takeover chatter could mark a turning point for software stocks

Workday shares surged 17.8% after reports that private equity firm Silver Lake held preliminary talks to acquire the enterprise software company, a deal that would be among the largest private equity software buyouts in history. Evercore ISI analyst Kirk Materne said the discussions suggest AI-related terminal risk for scaled enterprise software firms is 'potentially overdone,' while Jefferies analyst Brent Thill argued Workday's business is unlikely to be displaced by AI and going private could accelerate its AI transition. Workday's stock had fallen about 25% over the past year amid AI disruption fears, prompting co-founder Aneel Bhusri to return as CEO in February.

A big buyout of Workday WDAY https://finance.yahoo.com/quote/WDAY/ could send an important signal on software stocks, which have been hammered over the past 12 months. "We believe that the reported discussions highlights that the terminal risk related to AI for certain enterprise software companies i.e. those with scale is potentially overdone," Evercore ISI analyst Kirk Materne wrote in a note on Friday. Reports surfaced late Thursday that the tech-focused private equity firm Silver Lake has held preliminary discussions in recent months about acquiring enterprise software player Workday https://finance.yahoo.com/markets/stocks/article/workday-stock-surges-on-report-of-acquisition-talks-with-silver-lake-193728087.html . Shares finished yesterday's session up 17.8%. Prior to the buyout report, Workday had a market capitalization of roughly $43 billion after its stock faced persistent pressure due to investor concerns about artificial intelligence disrupting software. The stock price had fallen by about 25% over the past year prior to the news. The sluggish stock price performance and mounting AI worries caused Workday co-founder and executive chair Aneel Bhusri to return as CEO in February. He replaced longtime venture capitalist Carl Eschenbach https://finance.yahoo.com/video/ai-amplify-not-replace-human-140026667.html , who stepped down after nearly three years leading the company through a reorganization and a pivot toward more AI tools. If the deal happens, it would be one of the largest private equity software buyouts in history. It would also fire a shot back at "SaaSpocalypse" believers. The term "SaaSpocalypse" refers to the market disruption and sharp sell-offs across traditional software-as-a-service SaaS stocks driven by fears that artificial intelligence will undermine recurring revenue business models. Concerns have crushed the stocks of former software highfliers like Salesforce CRM https://finance.yahoo.com/quote/CRM/ , ServiceNow NOW https://finance.yahoo.com/quote/NOW/ , and DocuSign DOCU https://finance.yahoo.com/quote/DOCU/ . But at some point — and maybe that is now — top names in the space could be viewed as finally too undervalued. It's not like Workday and the aforementioned names haven't pivoted to AI on their own platforms. "We believe Workday's business is unlikely to be displaced by AI and that becoming a private company could help accelerate its AI transition, eventually driving revenue reacceleration and operating margin expansion," Jefferies analyst Brent Thill wrote in a note today. Brian Sozzi is Yahoo Finance's Executive Editor, host of the ' Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn . Tips on stories? Email brian.sozzi@yahoofinance.com. Click here for in-depth analysis of the latest stock market news and events moving stock prices Read the latest financial and business news from Yahoo Finance