Workday's Steep Slide: A Value Bet or Value Trap for Investors?
The U.S. equity market capped off 2025 with strong returns, but beneath the surface, the story was one of increasing selectivity. The S&P 500's 17.9% annual gain, detailed in Hotchkis & Wiley's fourth-quarter investor letter, masked a growing divergence. While the benchmark index has soared tenfold since the financial crisis, recent performance has been narrowly driven by a handful of mega-cap stocks. Excluding the so-called "Magnificent 7," market valuations appear more in line with historical norms, creating a fertile ground for value investors seeking overlooked opportunities.
In this environment, the Hotchkis & Wiley Large Cap Disciplined Value Fund outperformed its benchmark. Its strategy of selective stock-picking paid off, but not all holdings contributed positively. One notable laggard was enterprise cloud software provider Workday Inc. (NASDAQ: WDAY). The company's stock tumbled 15.13% in the final month of the quarter and has shed a staggering 33.35% of its value over the past 52 weeks, closing January 29, 2026, at $174.66 per share.
Workday's recent financials show a company still growing—fiscal Q3 2026 revenue rose 13% year-over-year to $2.43 billion—yet clearly out of favor with many investors. The fund's letter noted a reduction in hedge fund ownership, from 76 to 64 portfolios quarter-over-quarter, and positioned Workday as a relative detractor. The commentary suggested that while Workday has potential, other AI-centric stocks might offer a better risk/reward profile in the current climate, a sentiment reflecting the market's intense focus on pure-play AI narratives.
The sharp decline poses a critical question for the market: Is this a classic overreaction to short-term fears, creating a buying opportunity in a solid franchise, or a rational re-pricing of a company facing heightened competition and a potential slowdown in its core HR and financial software markets?
Investor Voices: Divergent Views on a Fallen Angel
Michael R., Portfolio Manager at a Mid-West Fund: "This is where disciplined value investing gets hard. Workday has a fantastic platform and sticky customers, but the growth rate is decelerating. The market is punishing that mercilessly. We're watching closely, but we need to see stabilization in guidance before stepping in. It's not yet a clear-value signal for us."
Sarah Chen, Tech Analyst at a Independent Research Firm: "The sell-off is overdone. You're getting a leader in cloud-based HCM and financials at a multiple not seen in years. Their shift to more AI-driven analytics is underappreciated. This is a long-term compounder on sale, and the market's myopic focus on the next quarter is creating a major mispricing."
David Krauss, a frequent market commentator on financial forums: "It's a value trap, plain and simple. The old guard of cloud software is getting disrupted. Workday's innovation cycle has slowed, and they're getting squeezed by niche players and giants alike. A 33% drop isn't a 'buying opportunity'—it's the market telling you the story is broken. The hedge funds dumping it are the smart money here."
Eleanor Vance, Retired CFO and Individual Investor: "As someone who used their software, I know how integral it becomes. That doesn't vanish overnight. The stock's fall feels emotional. For investors with a horizon longer than a few months, this volatility could be a gift. I've started a small position and will add on further weakness."
Disclosure: This analysis is based on publicly available information from investor letters and financial reports. It is for informational purposes only and does not constitute investment advice.