AI usage revenue is valued at lower multiples than subscription revenue

Fellow regards, I have just had an enlightening conversation with a tech exec that I wanted to share. Subscription based licensing means predictable high margin revenue. The economics drastically improve with scale as a 200k a year customer usually does not cost more to service than a 50k a year customer. Traditional seat based or org size based licensing models therefore lead to high valuation multiples. Meanwhile, LLM reliant “AI” use cases require usage based licensing due to the high cost in compute of each workload. But usage based licensing is not predictable, and the costs do rise in tandem with revenue. AI usage based revenue is a bit like services revenue, and even within that category it is particularly unpredictable: You may have a lot of revenue today and very little revenue tomorrow because customers are not generally committed to long term minimum usage contracts. So the reason ServiceNow and SalesForce stock prices are in the gutter is not just because some of the market thinks you can vibecode a platform in your garage over the weekend. It is also because usage based licensing models simply do not deserve the same revenue multiples in the eye of sophisticated investors, and both platforms have been forced to transition to a usage based model for some of their licensing to enable AI use cases on their platforms. I am not saying current valuations are fair, I still think ServiceNow in particular is likely to recover and I hold stock myself, I just wanted to share this thought with you all.