Workday to Cut Jobs Amid AI Investments

(Reuters) – Workday (NASDAQ:WDAY) announced on Wednesday it will reduce its workforce by approximately 1,750 jobs, or 8.5% of its total, as the human capital management firm increases investments in artificial intelligence to navigate a challenging macroeconomic landscape.

Shares of the California-based company rose over 4% in premarket trading.

CEO Statement

Workday CEO Carl Eschenbach stated that the layoffs are essential to prioritize investments in AI and to allocate resources for expanding the company’s global presence.

Industry Context

These layoffs occur amidst the human capital management sector’s struggles with slower enterprise client spending, as high interest rates exert pressure on tech budgets.

Workday anticipates incurring expenses ranging from $230 million to $270 million due to the cost reduction plan, expecting to recognize about $60 million to $70 million in the fourth quarter.

As of January 31 last year, Workday employed roughly 18,800 individuals.

Competitive Landscape

Workday is facing intense competition in a crowded market where companies are consolidating through acquisitions to gain market share. For instance, last month, Paychex (NASDAQ:PAYX) announced its acquisition of Paycor (NASDAQ:PYCR) for $4.1 billion, and Automatic Data Processing (NASDAQ:ADP) purchased WorkForce Software (ETR:SOWGn) for approximately $1.2 billion in cash in October.

Financial Outlook

Workday expects its fiscal fourth-quarter and full-year financial results to meet or exceed previous forecasts. The company predicted annual subscription revenue of $7.70 billion in November, with fourth-quarter subscription revenue anticipated at $2.03 billion, aligning with analyst expectations per LSEG data.

Additionally, Workday plans to close certain owned office spaces, completing actions related to the cost reduction plans by the second quarter of fiscal 2026.