Paycom, which sells payroll, benefits and time-and-attendance software to small and mid-sized American employers, told investors on 5 August that its own use of artificial intelligence had removed more than $100m a year from its research and development budget, plus another $30m of fees paid to third-party AI model providers. On the same call, management said the thing that actually generates its revenue — the number of people its clients employ — was stable, consistent with historical levels, and not accelerating.

Both statements are in the same quarter, and together they explain why the shares have run without the underlying employment base doing anything.

Billed per head, paid on margin

Paycom and Paylocity, a rival selling the same cloud payroll and human-capital management stack through its own direct sales force, are paid per employee per month. Their top line moves with client headcount, which is why the debate about AI agents replacing white-collar workers lands on them harder than on most software. The macro backdrop is not helping: the US economy shed 23,000 jobs in July, and ADP counted just 44,000 private hires, down from 95,000.

So the growth line is decelerating on schedule. Paycom's annual revenue growth has gone 23.2% in 2023, 11.2% in 2024, 8.9% in 2025; the raised 2026 guide of $2.197bn-$2.212bn implies 7-8%. Second-quarter revenue was $531.2m, up 9.8%.

The profit line went the other way. Operating income rose 50% to $168.5m, lifting operating margin to 31.7% from 23.2% — 850 basis points in a year, on single-digit revenue growth. Full-year adjusted EBITDA is guided to a record 46% margin at the midpoint, with free cash flow above $650m. Diluted shares fell from 56.3m to 45.9m after $1.4bn of buybacks year-to-date, roughly a fifth of the company retired in six months. Consensus 2026 earnings per share of $11.96 is up 29.5% on revenue growth of 7.6% — earnings compounding at four times the rate of the top line.

One leg the bear case expected to break has not. Interest earned on client payroll balances held between collection and disbursement was $26.0m in the quarter, on an average balance of about $2.9bn, up 9%, guided to roughly $105m for the year. The Federal Reserve is holding at 3.5%-3.75%, with the market now leaning toward hikes rather than cuts.

Paylocity pays more for less

Paylocity's fiscal fourth quarter, reported 4 August, brought revenue of $444.7m, up 11.0%, and operating margin of 19.0% against 16.5%. Its guidance is the problem: fiscal 2027 revenue of $1.880bn-$1.895bn, roughly 7% growth, on a deceleration that runs 37.8%, 19.4%, 13.7%, 11.0%. Consensus fiscal 2027 earnings of $8.83 sit only 9.0% above this year's.

That is the divergence inside the pair. Paycom trades at 23.1x trailing and 18.2x forward earnings, 11.8x trailing EV/EBITDA and a 7.7% free-cash-flow yield. Paylocity is at 29.7x trailing and 16.8x forward, 15.6x EV/EBITDA, 5.6% free-cash-flow yield — a similar forward multiple on roughly a third of the earnings growth. Both multiples have expanded sharply from mid-May: Paycom's forward P/E from about 11.2x, Paylocity's from about 11.8x. Neither has been accompanied by estimates running ahead of management; consensus for both sits at the midpoint of guidance issued this month.

The third name isn't in this business

ZoomInfo, which trades as GTM and sells business contact data and sales-engagement workflow, is grouped with the payroll vendors and belongs nowhere near them. Its second-quarter revenue was $310.4m, up 1.2%, with a $650.5m goodwill impairment driving a $643.7m net loss. Net revenue retention slipped to 89%. It cut headcount 15% year on year and is moving customers off per-seat pricing toward consumption billing as go-to-market work migrates into large language models. Analysts expect revenue to decline 2.6% this year and 2.1% next. Its price-to-gross-profit has gone from 0.89x in late July to 1.13x with nothing in the numbers changing. This is the one name where AI is visibly eating seats, and it is the one where the rally has no fundamental support.

What actually moved the shares

The advance is narrow and partly borrowed. Strip each name's two best sessions from the past 30 days and the group's average gain falls from about 34% to roughly 3%. Paycom's 6 August jump of 23.8% on four times normal volume was a genuine earnings reaction. Paylocity's two best days, 27 and 29 July, came a week before it reported anything — they were the software-wide AI rotation that lifted Salesforce, ServiceNow and Workday; its own print moved it 2.5%. The mid-August leg came from reports that Silver Lake was weighing a roughly $51bn purchase of Workday, the HR and financial software vendor, which lifted peers in sympathy. Workday rose about 40% over the month; ADP and Paychex, the incumbent payroll processors, rose about 10% each.

The setup

Where it stands — Paycom's re-rating rests on AI-driven cost savings and buybacks, not on a recovery in the client headcount it bills for. Would confirm — Third-quarter operating margin holding above 30% with 2026 revenue guidance maintained at 7-8%. Would invalidate — Paycom naming client employment declines, rather than stability, as a drag on recurring revenue growth. Watch next — Paycom's third-quarter results in early November; Paylocity's fiscal first quarter, guided to roughly 7% growth. Valuation — Paycom 23.1x trailing, 18.2x forward, up from about 11.2x forward in mid-May; Paylocity 29.7x and 16.8x.