AI fears spread to transportation, asset management stocks

After Algorhythm Holdings' (RIME) latest AI-powered freight shipping tool ended up dragging the broader transportation (^DJT) sector lower, Yahoo Finance Markets and Data Editor Jared Blikre — who also hosts Yahoo Finance's Stocks in Translation podcast — takes a closer look at how AI is also disrupting the stock brokerage and asset management landscape.

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Video Transcript

00:08 Jared Blikre

This week, the markets have been unnerving investors. A microcap that used to be a karaoke company lights up a press release about AI logistics. Suddenly, transportation stocks are getting pummeled into the ground, all in the name of AI disruption. What started in software led to drive-bys on real estate, stock bro- brokers, asset managers, insurance brokers, and yes, some transports too. It's called the AI scare trade, and that's what we're digging into on today's Stocks in Translation.

00:41 Jared Blikre

And if there's a common theme, it's AI killing the middleman and building a better, in quotes, more efficient pipeline. So, let's take a look at the evidence, starting with software, ground zero of the sell-off. This heat map here is a look at year-to-date returns, and most of these stocks peaked late last year, but the selling really intensified at the end of January with a capitulation in the first week of February.

01:13 Jared Blikre

We just talked with Tom Bruni, editor-in-chief of Stocktwits, who laid it out plainly.

01:21 Tom Bruni

They're having to figure out how to implement AI into their businesses to avoid becoming completely obsolete, and the market is still trying to figure out like what the right valuation for those companies are.

01:34 Jared Blikre

That word, valuation, is the whole game. AI kills the old multiple or AI builds a new moat. Now, fast forward to this week. The fear does not stay in software, it leaks. It looks for the next easy target, and that takes us back to transports. And I'll put this on a five-day view.

02:00 Jared Blikre

Uh, when a tiny little microcap name, uh, decides to drop an AI logistics headline, short sellers jumped on the biggest names in the business and forced all the longs out who didn't have diamond hands. Big names you might not have heard of were down double digits, like Expeditor, Landstar, and RXO. But only a few days, uh, before that, brokers and asset managers were the target. And we have a look at that here.

02:29 Jared Blikre

Because this bucket is literally the business of advice, planning, and finding the right thing for the right person and getting paid a fee for it. An AI-driven tax tool was released into the wild and the thinking was, who needs intermediaries at any level? AI kills a fee or builds a super advisor. LPL Financial, Schwab, Raymond James, even wealth giant Morgan Stanley got hammered. And then fear hopped to a different industry yet again, this time to real estate.

03:00 Jared Blikre

And this is where you can feel the market getting a little bit lazy. If AI does more white collar work, do we really need as much office space? Or so the thinking went. And if AI can build out comps, write listings, generate decks, summarize leases, what happens to the human middle layer of the transaction? AI kills the deck or AI builds the deal flow. But it wasn't all about selling. We did see rotation into some defensive areas, giving the market some green relief and keeping the indexes from steep declines.

03:32 Jared Blikre

Check out consumer staples here. The stuff we need from Walmart and Kroger, the stuff made by Clorox and Unilever, or utilities here. As, guess what? AI still needs gigawatts of electricity. So once again, boring utilities becomes a hedge in a non-traditional way. Or even home builders here because AI bots are not digging basements and putting up drywall just yet, and humans still need shelter.

04:05 Jared Blikre

So this is the part that keeps the base case alive, but the shotgun short selling still has a hangover. Here's Tom Bruni again.

04:14 Tom Bruni

So we're just in this environment where people are very fearful of software stocks and the overall industry impact, and it's kind of like sell now, ask questions later.

04:23 Jared Blikre

That is the AI scare trade in one breath. So how does this end? It really resolves in one of three different lanes. First, short sellers' headlines. Those headlines might spread to new industries. That's your sideways case. The index can look okay while the marketplace plays whack-a-mole with whatever business model feels most automatable this week. Second, rotation shifts to sell everything days. This is your bear case. Correlations jump, the market stops discriminating, the safe havens stop feeling safe.

04:54 Jared Blikre

But third, software and high hyper scalers, they could lead again. This is your bull case. The market decides that the winners are the ones who sell the shovels, not the ones afraid of the dig. And finally, the real world confirmation signal, stimulus and refunds start showing up in the spending data. If that cash flow support is real this year, it can keep this from turning into a prolonged wipeout even if the next few months are bumpy and frustrating.

05:13 Jared Blikre

So tune in to the Stocks and Translation podcast for more jargon-busting deep dives. New episodes can be found Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast.

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