(Bloomberg) — Logistics stocks plunged on Thursday as the group became the latest victim of artificial intelligence “fear trading”. At the center of the collapse is a former karaoke company with a stock price of $6 million.
The value of this little-known company is only a fraction of the value it has swung from other companies, all of which was quickly dumped by investors who fear even the slightest threat from AI.
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The Russell 3000 Trucking Index fell as the company promoted its logistics platform. CH Robinson Worldwide Inc. fell sharply, dropping a record 24% at one point, while Landstar System Inc. fell.
It was the sector’s worst decline since the trade war-induced market crash in April. Pharmaceutical distribution stocks were also caught up in the decline, with McKesson and Cardinal Health both down about 4%.
Algorhythm Holdings Inc., formerly trading as The Singing Machine Company Inc., announced that its SemiCab platform now enables customers to increase freight capacity by 300% to 400% without correspondingly increasing operations headcount.
Algorithm sold karaoke products before rebranding as an AI logistics company in 2024. It reported sales of less than $2 million for the quarter ended Sept. 30, and net losses for the period totaled nearly $3 million. But after the announcement, the company’s stock price soared to $1.08, slowing its rise of as much as 82% at the start of trading.
This move highlighted how much anxiety surrounding AI has built up. Concerns that new AI-powered tools and applications could upend the business models of many industries have led to sharp declines in several sectors of the stock market in the past few weeks. It started with software manufacturers, then spread to private credit companies, insurance companies, wealth managers, real estate services, and now logistics companies.
“I would probably be skeptical that this particular company is going to be an industry disruptor,” Citigroup’s Ariel Rosa said of algorithms. “But the idea that someone will eventually come in and try to disrupt the industry seems like a pretty high probability.”
The drop in logistics spread to Europe, with Denmark’s DSV A/S down 11%. Switzerland’s Kuehne + Nagel International fell 13%.
Investors viewed transportation as part of an “AI-proof” trade, especially as the technology name changes prompted portfolio diversification. But the decline proved that even the “old economy” is not immune to the concerns of AI wreaking havoc on markets.
“The concern is that there could be disintermediation of truck brokers. That’s why truck brokers have been hurt so much,” said Christopher Kuhn, an analyst at Benchmark who covers trucking stocks. “The whole sector is hurting, but it’s primarily on the broker side.”
“I think their time has come,” Kuhn added. “I think it’s overkill, and we need more details. But clearly, it’s unlikely that a large company would implement this software without using a major truck broker like CH Robinson or RXO.”
Jeffrey Fabza, head of the equity trading desk at Jefferies, said the decline in freight logistics companies highlights a broader theme in the market as a whole.
“There is active attack on every corner of the market right now, but if you see AI headlines in any area of the market, be sure to ask questions later,” he wrote in a note to clients.
knee jerk reaction
Analysts and investors have warned that some of the surge may reflect an opportunistic reaction and overestimate the risks.
“Today’s decline seems to largely defy the idea that the group appears to be at a cyclical tipping point due to reduced supply and potential fiscal impacts,” Baird’s Daniel Moore said in a note.
Meanwhile, Barclays analyst Brandon Oglensky called the reaction “not proportionate to the risk” and defended C.H. Robinson and other asset-light carriers. Oglensky added that he would be a buyer in the sector, especially with CH Robinson stock underperforming.
“While the long-term impact of AI is inevitable and strong, stock reactions to such news tend to be emotional and exaggerated,” said Mark Hackett, chief market strategist at Nationwide.
Citigroup’s Rosa said the big decline in transportation stocks should be seen in the context of rising valuations. Given the high valuations, he wasn’t surprised that investors were “a little more nervous.”
“It’s going to play out over months, quarters and years, but today we have a sense of the reality that others may be able to replicate, replace and emulate what CH. Robinson has made great strides in recruiting,” Rosa said.
–With assistance from Janet Freund.
(Updates share to add details and quotes throughout.)
