‘Level of paranoia is Category 5’: AI scare trade finds latest victim in logistics stocks

NEW YORK – Logistics stocks plunged on Feb 12 as the group became the latest victim of the “AI scare trade”. At the centre of the sell-off: a former karaoke company with a stock-market value of only US$6 million (S$7.6 million).

The little-known company is worth just a fraction of the value it knocked off of others – all of which were dumped by investors fearful of even the faintest threat posed by artificial intelligence (AI).

The company’s trumpeting of its logistics platform sent the Russell 3000 Trucking Index sliding 6.6 per cent. CH Robinson Worldwide tumbled 15 per cent – and at one point was down by a record 24 per cent – while Landstar System plunged 16 per cent.

It was the worst drop for the sector since April’s trade-war market meltdown.

The chief executive officer of the karaoke-turned-AI company was among those left shocked by the market action.

“Never in my wildest dreams would I ever have imagined a day like today,” said Mr Gary Atkinson, CEO of Algorhythm Holdings. “It’s almost like David versus Goliath.”

The latest companies to be swept up in the selling join real estate firms, software makers, private credit providers, insurance brokerages and wealth managers among the industries battered in recent sessions by fears of AI’s disruptive power.

Feb 12’s losses came amid a broader risk-off move in markets that saw the Nasdaq 100 Index tumble 2 per cent. Gold, silver and cryptocurrencies also posted steep losses. 

“The level of paranoia is Category 5,” said Mr Joseph Shaposhnik, portfolio manager at Rainwater Equity. “It’s not something that we’ve seen in quite a long period of time.”

The worries over AI-fuelled disruption underscore a sea change in market sentiment. Enthusiasm for the technology drove the lion’s share of stock market gains over the last few years. But it has been replaced by worries that the newest tools released by Alphabet’s Google, AI developer Anthropic and a slew of lesser-known start-ups are already good enough to threaten a wide array of companies, many far outside the umbrella of technology.

Wall Street has become so jittery about AI that just a whiff of possible disruption is enough to send entire sectors over a cliff. There was not as clear of a catalyst around the real estate sell-off that started Feb 11 and sent shares of CBRE Group and Cushman & Wakefield to their worst one-day drops since 2020. CBRE CEO Bob Sulentic said on the company’s Feb 12 earnings call that if AI leads to decreases in companies’ headcounts and demand for office space, it would be a “long-term trend to unfold”.

Algorhythm Holdings, which previously traded as The Singing Machine Company, announced that its SemiCab platform was helping its customers scale freight volumes by 300 per cent to 400 per cent without a corresponding increase in operational headcount. The company rebranded in 2024 as an AI logistics firm. Mr Atkinson said the company pivoted to AI in part because US tariffs on karaoke machines imported from China caused the business to suffer.

Algorhythm reported less than US$2 million in sales for the quarter that ended on Sept 30, with a net loss totalling nearly US$3 million for the period. But its shares soared 30 per cent after its announcement, paring what had been a jump of as much as 82 per cent earlier in the session.

Citigroup analyst Ariel Rosa said of Algorhythm: “I would probably be more inclined to be sceptical that this particular company is gonna be the one to disrupt the industry. But the notion that someone will eventually come in and try to disrupt the industry seems like a decently high probability.”

The logistics sell-off extended to Europe, with Denmark’s DSV closing down 11 per cent, while Swiss company Kuehne + Nagel International slid 13 per cent.

Investors had seen transportation as part of the “AI-resistant” trade, particularly as volatility in technology names caused a push to diversify portfolios. However, the sell-off has proved that even the “old economy” is not immune to the AI concerns that have been wreaking havoc on the market.

Mr Christopher Kuhn, a Benchmark analyst covering trucking stocks, said: “The worry is that it could disintermediate the truck brokers, which is why they’re getting hit so much. The whole sector is getting hit, but it’s mostly on the broker side.”

Knee-jerk reaction

Analysts and investors have warned that some of this steep selling reflects a knee-jerk reaction and could be overestimating the risk.

Mr Mark Hackett, chief market strategist at Nationwide, said: “While the impact from AI over time is inevitable and powerful, stock reactions to news like this tend to be emotional and exaggerated.”

Meanwhile, investors were desperately trying to game out what sector could be next to get hit by the “AI scare trade”.

Mr David Sekera, chief US market strategist for Morningstar, said: “The $100,000 question is everyone trying to figure out who or what segment is going to be targeted by the market next. What we’ve seen is some people have that ‘sell first, ask questions later’ type of mentality.” BLOOMBERG