Former Karaoke Company Drags Logistics Into the ‘AI Scare Trade’

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 wasn’t as clear of a catalyst around the real estate selloff that started Wednesday and sent shares of CBRE Group Inc. and Cushman & Wakefield Ltd. to their worst one-day drops since 2020. CBRE Chief Executive Officer Bob Sulentic said on the company’s Thursday 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 Inc., rebranded in 2024 as an AI logistics firm.

“As a CEO of a public company, I have a fiduciary responsibility to the shareholders to look for opportunities that have better growth opportunities,” he said. “We decided to just go all in on freight logistics.”

Algorhythm reported less than $2 million in sales for the quarter that ended on Sept. 30, with a net loss totaling nearly $3 million for the period. But its shares soared 30% to $1.08 after its announcement, paring what had been a jump of as much as 82% earlier in the session.

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

CH Robinson in a statement to Bloomberg said it believes AI will only continue to strengthen its performance, while noting that “perceptions of artificial intelligence are influencing recent market activity.”

The logistics selloff extended to Europe, with Denmark’s DSV A/S closing down 11%. Swiss firm Kuehne + Nagel International AG slid 13%.

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 selloff has proved that even the “old economy” is not immune to the AI concerns that have been wreaking havoc on the market.

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

“I guess it was their time,” Kuhn added. “I think it’s overdone but we need more detail. But clearly it’s unlikely that a big corporation is going to put in this software and not use a major truck broker like CH Robinson and RXO.”

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.

Barclays analyst Brandon Oglenski defended CH Robinson, as well as other asset-light transport companies, seeing the reaction as “disproportionate to the risk.” Oglenski added that he would be a buyer of the sector on weakness, particularly in CH Robinson shares.

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

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

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

–With assistance from Janet Freund and Farah Elbahrawy.

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