The U.S. logistics sector experienced a collective plunge on Thursday, becoming the latest victim of the ongoing artificial intelligence (AI) panic trading. The catalyst for this sell-off was a small company with a market value of just $6 million, formerly focused on the karaoke business—Algorhythm Holdings Inc. (RIME). This obscure firm, whose market capitalization is a fraction of the giants it unsettled, triggered a wave of selling as investors grew wary of even the slightest potential AI threat. Following the company's high-profile promotion of its logistics AI platform, the Russell 3000 Freight Index plummeted 6.6%. C.H. Robinson (CHRW) sank 15%, after a record intraday drop of 24%, while Landstar (LSTR) also fell sharply by 16%. This marked the sector's worst single-day decline since the market crash triggered by trade war concerns in April. The sell-off also impacted medical distribution stocks, with both McKesson (MCK) and Cardinal Health (CAH) falling approximately 4%. Even the CEO of the karaoke-turned-AI company expressed astonishment at the market's reaction. "I never dreamed we'd see a day like this," said Algorhythm Holdings CEO Gary Atkinson, describing the situation as "David versus Goliath." Recently, numerous sectors including real estate, software, private credit, insurance brokerage, and wealth management have suffered heavy losses due to fears of AI's disruptive impact, and now logistics firms have joined the downturn. Broader market risk aversion intensified on Thursday, with the Nasdaq 100 Index falling 2%, and gold, silver, and cryptocurrencies also posting significant declines. "The level of panic in the market has reached a Category 5 hurricane," stated Joseph Shaposhnik, a portfolio manager at Rainwater Equity, adding, "It's a sentiment we haven't seen in a very long time." Concerns about AI's disruptive potential signal a fundamental shift in market sentiment. For years, enthusiasm for AI technology was a core driver of stock market gains. Now, that sentiment has been replaced by fear—investors worry that the latest AI tools from companies like Google (GOOGL), Anthropic, and various niche startups are sufficiently advanced to threaten a wide range of businesses, with implications extending far beyond the tech sector. Wall Street has become hypersensitive to any hint of AI-related risk, with even minor potential threats capable of sending entire sectors into a tailspin. A similar sell-off in real estate stocks that began on Wednesday, also lacking a clear catalyst, caused CBRE Group (CBRE) and Cushman & Wakefield (CWK) to record their worst daily drops since 2020. CBRE CEO Bob Sulentic noted during an earnings call on Thursday that if AI leads to corporate job cuts and reduced demand for office space, it would represent "a long-evolving trend." Algorhythm Holdings, formerly known as The Singing Machine Company, originally focused on karaoke equipment before rebranding and pivoting to AI logistics in 2024. The company announced that its SemiCab platform could help clients increase freight volume by 300% to 400% without a corresponding increase in operational staff. Atkinson explained that the pivot to AI was partly driven by tariffs on Chinese-imported karaoke equipment damaging their original business. "As a CEO of a public company, I have a fiduciary duty to shareholders to seek more promising growth opportunities," he said. "We decided to go all-in on the freight logistics space." For the quarter ending September 30, Algorhythm reported revenue of less than $2 million and a net loss of nearly $3 million. However, following the announcement, its stock price surged 30% to $1.08, with an intraday peak gain of 82%. "I'm personally skeptical about whether this company can truly disrupt the entire industry," commented Citi analyst Ariel Rosa regarding Algorhythm. "But the possibility that some company will eventually enter and disrupt the logistics industry is quite high." The freight stock sell-off spread to Europe, with Danish shipping giant DSV closing down 11% and Switzerland's Kuehne + Nagel plunging 13%. Previously, investors had viewed the transportation sector as relatively "AI-resistant," especially during periods of heightened tech stock volatility when funds sought diversification. However, this sell-off demonstrates that even "old economy" sectors are not immune to the AI panic sweeping the markets. "The core reason for the sector's severe decline is market concern that AI could bypass freight brokerage firms," said Benchmark freight industry analyst Christopher Kuhn. "The entire sector is falling, but the impact is concentrated on the brokerage side." "I guess it's their turn [to feel the pressure]," Kuhn added. "I think the market is overreacting, but we need more information. Clearly, large companies are unlikely to directly adopt such software and abandon major freight brokers like C.H. Robinson and RXO (RXO)." Overreaction Warning Analysts and investors caution that the sharp sell-off is partly an overreaction, potentially overestimating the risks posed by AI. Barclays analyst Brandon Oglenski defended C.H. Robinson and other asset-light transportation companies, calling the market reaction "a significant mismatch with the actual risk." He also stated he would add to positions during the sector pullback, particularly in C.H. Robinson stock. "While the long-term impact of AI is inevitable and profound, the market's reaction to such news is often emotional and exaggerated," noted Nationwide's chief market strategist Mark Hackett. Meanwhile, investors are frantically speculating about which sector will be hit next by "AI panic trading." "The biggest question on everyone's mind now is which company or sector the market will target next," said David Sekera, chief U.S. market strategist at Morningstar. "We are seeing many adopt a 'sell first, ask questions later' mentality." Macro Ripples: The Fed as the Next Domino So far, this rotational selling has been confined to the stock market and has not yet reached the macro level to influence discussions about Federal Reserve monetary policy. However, if market turbulence persists, the situation could change. Macquarie global strategist Thierry Wizman warned that if fear-driven investment sentiment continues, the AI issue could even pose a substantive challenge for the Fed. A report indicated that hawkish members of the Fed might point to stubborn inflation and a healthy labor market as reasons to maintain higher rates, while doves could argue for allowing the economy to run slightly hot to gain productivity improvements that offset anxieties about AI replacing jobs. Wizman wrote, "The 'AI panic trade' that emerged last week continues to curb investor exposure to U.S. stocks. If 'AI panic' further dampens sentiment, the burden of proof for needing easier policy will quickly shift to the hawks." Meanwhile, the AI threat is increasingly appearing in corporate earnings disclosures. According to a study released by The Conference Board last October, nearly three-quarters of S&P 500 companies cited AI as a material risk factor in their financial reports, a significant increase from 12% in 2023. The organization noted in a statement that this shift highlights "the speed at which AI is moving from experimentation into core business systems, and reflects how boards and management are urgently addressing the reputational, regulatory, and operational risks involved." In a recent client note, UBS strategist Matthew Mish wrote that as panic persists around the core expectation that "rapidly evolving AI models will disrupt broad swathes of the economy," investors are scrutinizing every sector for signs of vulnerability. Mish stated, "The February sell-off, driven by AI disruption expectations, is underpinned by a growing market consensus: AI transformation is not only accelerating within the software industry but will also sweep across many other sectors." He added, "The timing of AI disruption remains uncertain, and this cloud of uncertainty is unlikely to clear in the short term."