ServiceNow CFO says AI is ‘real’ but still in early stages of development

There was Very investor comments that the AI ​​trend is overhyped and that the boom has only benefited a few companies, the most well-known of which are Nvidia (NVDA), Microsoft (MSFT) and OpenAI for the majority of AI-related revenues.

Don’t say ServiceNow (NYSE:NOW) Financial Director Gina Mastantuono.

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

ServiceNow impressed investors last month with its second-quarter results, including momentum from its generative AI offering.

“Gen AI momentum is real and continues to grow,” Morgan Stanley analyst Keith Weiss said in a note to clients. “Management noted that net ACV for the Pro Plus edition (the SKU that includes ServiceNow’s Gen AI capabilities) doubled (quarter over quarter), and Pro Plus delivered 11 deals above $1 million, including two deals above $5 million. Additionally, Pro Plus saw a 30% increase in pricing, and average deal sizes increased by more than 3x compared to comparable deals during Pro’s adoption cycle.”

Morgan Stanley maintained an “Overweight” rating and a $900 price target on the stock.

ServiceNow CEO Bill McDermott highlighted the growing number of deals with enterprise customers using its generative AI-based 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 that the cloud computing company’s customers continue to struggle with the same problems they did before the advent of generative AI: productivity and profitability.

“With GenAI integrated into our platform, information and action come together to create true simplicity and massive scale,” she explained.

Artificial intelligence still in “early stages”

There is a heated debate about whether the AI ​​spending boom will continue, with concerns that tech giants like Microsoft, Google (GOOGL), Meta Platforms (META), and Amazon (AMZN) will spend huge sums of money on AI.

While some people will admit that there is a chance of spending too much money, it is better to spend too much than too little.

“I think the only way I think about it is that as we go through this curve, the risk of underinvesting is dramatically greater for us than the risk of overinvesting, even in scenarios where we end up overinvesting,” Alphabet CEO Sundar Pichai said during the company’s latest earnings conference call.

Meta CEO Mark Zuckerberg said the company’s next AI model, Llama 4, “will likely be almost 10 times the size of what we used to train Llama 3, and future models will evolve even further.”

“It’s hard to predict how this will play out over generations,” he added. “But at this point, I’d rather risk building capacity before it’s needed than too late, given the long lead times for new infrastructure projects.”

Mastantuono shares this view, pointing to the fact that research firm Gartner now predicts that global IT spending will grow by 8.9% in 2024, higher than originally forecast at the beginning of the year.

As such, he still believes that the explosive growth in AI spending that has been going on globally over the past 18 months is likely to continue.

“That said, we’re still in the early stages of AI, especially in enterprise software—that movement is growing rapidly,” Mastantuono said. “We’ve seen growth in our GenAI business, as I mentioned, but we’re just getting started. We’re onboarding partners and quickly arming them with the tools to sell our GenAI solutions, which will provide even greater capabilities and scale.”