Morgan Stanley says Workday buyout talk points to a software sector cheap enough for PE again
Morgan Stanley said in an Aug. 16 software note that reported talks between Silver Lake and Workday may be sending a broader valuation signal across software. Workday, a global leader in human capital management and financial management software with a market capitalization of about $50 billion, could become one of the largest software take-private deals in recent years if a transaction is completed. According to Morgan Stanley analyst Adam Wood, even with a 30% to 40% takeover premium, the valuation would still be only about 5x 2027 sales and roughly 16x 2027 free cash flow, both below historical averages. The bank argued that this matters beyond a single company. It said software take-private activity has been sparse over the past year as tighter credit and ongoing debate around AI weighed on confidence. Morgan Stanley also pointed to a separate trend in AI pricing, saying open-weight models are pressuring token prices but may not destroy returns for hyperscalers, which could still generate about 20% to 60% ROIC on owned compute under lower-price assumptions. Investor sentiment in software remains divided, based on a survey of more than 150 investors, though bullish respondents still outnumbered bearish ones. The report also highlighted concerns over Netcompany’s cash flow quality and examined SpaceX’s $60 billion all-stock acquisition of Cursor as another signal in software and AI infrastructure valuation.
