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

Silver Lake's potential Workday buyout could bolster battered software valuations by showing that private equity remains confident in the industry's prospects despite fears of AI disruption, analysts and investors said on Friday.

Shares of the human-resources and financial management software company soared nearly 18% on Thursday after Reuters exclusively reported about its acquisition talks with Silver Lake, which pushed its market value to more than $51 billion.

The enthusiasm provided some relief to a sector hammered this year by fears that AI tools capable of generating computer code and creating applications could erode the need for software services, which have long been one of Silicon Valley's most reliable cash generators.

"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," Brian Mulberry, client portfolio manager at Zacks Investment Research, said.

Strong recent earnings from the likes of ServiceNow have also highlighted the staying power of software companies embedded in key functions such as human resources, customer relationship management and finance, where changing systems can be costly and disruptive.

That has helped push the S&P 500 Software & Services index up roughly 25% quarter-to-date.

SAP led a rally in European software stocks on Friday, a day after U.S. peers such as Salesforce, Adobe and ServiceNow gained between 1.9% and 4.5%.

A Workday acquisition will validate the view that it has a "strong moat and large opportunity to automate the back-office that can be unlocked over time," Morgan Stanley analysts said.