ServiceNow CFO says AI is ‘real,’ still in early innings

There has been a lot of commentary from investors that the artificial intelligence trend is overhyped and that the boom has only benefited a few companies, with just Nvidia (NVDA), Microsoft (MSFT) and OpenAI accounting for the most of the AI-related revenue.

Don’t tell that ServiceNow (NYSE:NOW) CFO Gina Mastantuono.

“AI is real for ServiceNow and it’s real for our customers,” Mastantuono said in an interview with Seeking Alpha. “We’re seeing firsthand that technology leaders have moved beyond experimentation with GenAI and are focused on implementation.”

ServiceNow impressed investors with its second-quarter results last month, including momentum stemming from its generative artificial intelligence offerings.

“Gen AI momentum is real and continues to build,” said Morgan Stanley analyst Keith Weiss in a note to clients. “Management noted that net-new ACV for the Pro Plus edition (the SKU that incorporates ServiceNow’s Gen AI capabilities) doubled [quarter-over-quarter] with Pro Plus delivering 11 deals over $1M including two deals over $5M. Furthermore, Pro Plus realized a 30% price uplift and average deal sizes are up over 3x versus comparable deals during the Pro adoption cycle.”

Morgan Stanley maintained its Overweight rating and a $900 price target on the stock.

ServiceNow CEO Bill McDermott highlighted the growing number of deals with corporate customers utilizing their generative AI products, including Honda (HMC), Stellantis (STLA), Merck (MRK), Adobe (ADBE), Dell (DELL) and STMicroelectronics (STM).

Mastantuono, who joined ServiceNow in 2019 after stints at Ingram Micro, Revlon and InterActive Corp (IACI), added the cloud computing company’s customers are still dealing with the same issues prior to generative AI bursting onto the scene: productivity and profitability.

“With GenAI embedded throughout our platform, information and action are coming together to drive real simplicity and massive scale,” she explained.

AI still in the “early innings”

There has been a lot of debate about whether the AI-related spending boom will continue, with concerns over tech giants Microsoft, Google (GOOGL) (GOOGL), Meta Platforms (META) and Amazon (AMZN) spending gregarious amounts of money on AI.

And while some have conceded that there is a possibility too much money is being spent, it is better to do too much than too little.

“I think the one way I think about it is when we go through a curve like this, the risk of under-investing is dramatically greater than the risk of over-investing for us here, even in scenarios where if it turns out that we are over investing,” Alphabet Chief Executive Sundar Pichai said on the company’s most recent earnings call.

Meta Chief Executive Mark Zuckerberg said the next AI model for the company, Llama 4, “will likely be almost 10 times more than what we used to train Llama 3, and future models will continue to grow beyond that.”

“It’s hard to predict how this will trend multiple generations out into the future,” he added. “But at this point, I’d rather risk building capacity before it is needed rather than too late, given the long lead times for spinning up new infra projects.”

Mastantuono shares that sentiment, pointing to the fact that research firm Gartner now expects global IT spend will up 8.9% in 2024, higher than originally forecasted at the start of the year.

As such, she still believes the AI-related spending boom the world has seen over the past 18 months is likely to continue.

“That said, we are still in the early innings with AI, especially when it comes to enterprise software – the movement is rapidly unfolding,” Mastantuono said. “We’ve seen an uptick in our GenAI business as I’ve mentioned, but we are just scratching the surface. We’re onboarding partners and rapidly arming them with the tools to sell our GenAI solutions, which will present even more massive opportunity and scale.”