ServiceNow's stock experienced a significant 5.10% decline in after-hours trading on Wednesday, despite the company reporting better-than-expected quarterly results and issuing strong forward guidance that exceeded analyst estimates.

The sell-off highlights intense market skepticism regarding traditional application software leaders, with investors worried that generative AI will reshape the industry landscape and potentially weaken the market positions of established giants like ServiceNow. While the company's primary generative AI product, Now Assist, is performing above expectations with its annual contract value surpassing $600 million, these positive developments failed to alleviate investor anxieties about technological disruption.

Additionally, concerns about the company's aggressive mergers and acquisitions strategy contributed to the negative sentiment. ServiceNow has been spending heavily on acquisitions, including its $7.75 billion deal to buy cybersecurity startup Armis, which has pressured the stock according to market analysts. The company's focus on AI integration through partnerships with Anthropic and OpenAI, along with other strategic acquisitions, has raised concerns about spending levels even as ServiceNow demonstrates strong fundamental performance.