The trucking and logistics sector has become the latest to come under scrutiny from investors who fear that it could be a loser in the race to keep up with developments in artificial intelligence.
A sell-off was triggered by a note from Algorhythm Holdings, which promised that its software could help customers increase freight volumes by 300 to 400 per cent, without a parallel increase in headcount. Up until recently the $6.2 million minnow made its money selling in-car karaoke machines.
The Russell 3000 Trucking Index, which tracks shares in the US trucking sector, fell almost 7 per cent on Thursday.
As markets pick their AI successes and failures, volatility has become the norm in London and New York equity markets. The so-called AI scare trade has wiped billions of pounds off the value of some of London’s largest companies over the last two weeks, with data and software companies such as Relx and Experian the worst hit.
• Wealth firms hit by sell-off in new AI scare
Markets first became truly unsettled by the release of a range of products by Anthropic for its Claude Cowork office assistant last week. Its 11 plugins promise to automate a variety of tasks for companies across legal, marketing and customer support operations.
Dario Amodei, chief executive of Anthropic
DENIS BALIBOUSE/REUTERS
The contagion has since spread to the wealth management, insurance and commercial property industries in an indiscriminate sell-off that some say indicates that investors will continue to speculate on the next AI casualties.
“It’s more a trading-generated position rather than investors having a view,” Charles Hall, head of research at Peel Hunt, said.
The growing influence of hedge funds betting against baskets of shares in the market has amplified the share price swings seen over the past two weeks, according to Jamie Mills O’Brien, an investment director in Aberdeen’s equities team. “In the past when we had these periods, we maybe got long only [funds] stepping in and stabilising price action, but we’re seeing that less,” he said.
Beyond Anthropic, a cluster of little-known start-ups have sent shockwaves through incumbents across a variety of industries. On Monday, Mony Group, which owns MoneySuperMarket, and Future, the media company behind Go Compare, were hit after Insurify, which is based in Massachusetts, launched an app that uses ChatGPT to help customers find better car insurance deals.
Some of the most established names in wealth management were also hit by an American upstart. Altruist said on Wednesday that a new tax-planning offering within Hazel, its AI platform, could help advisers create personalised tax strategies for clients “within minutes”.
The announcement left shares in St James’s Place, the FTSE 100 wealth management firm, down 17 per cent over the week, while AJ Bell, a lower-cost investment platform, was 5 per cent lower.
“It’s ludicrous to think that these are real products that [mean] people are going to definitively change a business model. It’s far too early for that,” Hall said. “But what they definitely do is move share prices, and when you are able to move share prices, then there’s a trading opportunity.”
The sell-off has boosted a swathe of previously out-of-favour sectors and sharply reversed a rally in the share prices of some of the best performers. Relx, which up until last week was one of London’s top 15 most valuable companies, has shed more than £6 billion despite a late bounce in its share price on Friday.
• Relx says it is inconceivable that AI can replicate its business
Meanwhile, companies including GSK, the pharmaceutical giant, and Halma, the FTSE 100 equipment specialist, have posted some of the best gains since the AI-driven sell-off began. Shares in the latter, which has traditionally been seen as a defensive play, closed the week 10 per cent higher.
“There’s an element of ‘where can I hide?’ at the moment,” Hall said.
GSK has been among the beneficiaries
A dearth of technology companies in London, which up until the end of last year had held back the performance of UK equity markets, has seen the FTSE 100 pull ahead of America’s top indices. London’s blue-chip index has risen 5.2 per cent since the start of the year, hitting a new closing high of 10,472.11 this week, while the S&P is broadly flat over the same period.
The latter had been turbocharged by the so-called Magnificent Seven group of stocks, which includes Google’s parent Alphabet and Nvidia. However, the performance of some of America’s most valuable technology companies has diverged, with Alphabet charging ahead and the likes of Amazon trailing behind as investors grow more cautious over whether they will reap the benefits of the billions they have pledged to build up their AI infrastructure.
“Investors are rightly questioning whether this is the ‘AI bubble’ deflating or simply another episode of volatility,” Fabiana Fedeli, chief of investment office of equities, multi-asset and sustainability at M&G Investments, said. The market was likely to “become more discerning about which companies it backs”, she added.
Amid the market disarray, the bosses of some of the companies caught up in the sell-off remained sanguine. Nick Luff, the finance boss of Relx, insisted it was “almost inconceivable” that the technology could replicate its business. “It’s that information base which is critical. It’s unique, it’s comprehensive, it’s continuously updated on an industrial scale,” he said, arguing that its proprietary data should help insulate it against AI disruption.
Some think the current market downturn will reverse. “At the moment it’s been a pretty easy short for hedge funds, because if you’re trading headlines you’ve done very well,” Mills O’Brien said. “But I think that kind of environment won’t last for ever … the fundamentals will matter.”
History’s trail of pain and gain
“Nobody knows anything,” William Goldman, the screenwriter behind Butch Cassidy and the Sundance Kid and Marathon Man, famously remarked. It was almost impossible to predict which films would capture the public imagination and which would expensively bomb.
Something similar is happening in global share markets (Patrick Hosking writes). Traders and investors have lurched from one opinion to the next as they grapple with the trillion-dollar question of where artificial intelligence will confer fabulous riches and where it will lead to losses and bankruptcies.
All we can guess from history is that there will be plenty of both. Every major technological breakthrough has produced winners and losers — and that is just as often the case among the supposed disruptors as among the disruptees.
The digital and dotcom boom of 1995 to 2000 and its subsequent bust from 2000-03 is often cited as the closest analogy to the current frenzy of activity and speculation in AI. Back then, a wave of capital was pushed into the telecoms, media and technology companies that were to build the infrastructure for this digital revolution, and into the start-ups that would bypass traditional ways of doing things.
Investors deserted companies in sectors disparaged as “old economy” in favour of untested businesses with fabulous sales projections, a hastily purchased domain address and sometimes not much else. It was the era of “irrational exuberance”, in the words of Alan Greenspan, the US Federal Reserve chairman at the time, and characterised by a near-hysterical excitement about companies such as lastminute.com.
Martha Lane Fox and Brent Hoberman, co-founders of lastminute.com
SEAN DEMPSEY/PA
Greed turned to fear almost exactly as the millennium arrived. The overall share market in the following three years roughly halved and many former tech darlings such as WorldCom in the US and Marconi (formerly GEC) in the UK were wiped out.
Those early to the party who had the wisdom to leave it early too made fortunes. And when the dust settled, economies were left with an improved digital infrastructure and a few battle-scarred winners, like Amazon, Google and Apple. Moreover, old-economy firms then just dabbling with digital technology got the breathing space to apply it more successfully.
The railways in 19th-century Britain, electrification at the turn of the 20th century and later the arrival of motor cars and radio produced a mix of lucrative wins and value-destroying shocks.
The uncertainty existed all the way along the food chain: there are parallels between the hyperscalers building the data centres in this AI boom, telecoms groups laying cable in the 1990s, motor manufacturers building factories in the 1920s and railway kings laying track in Victorian times.
Similarly, there are companies that then either successfully harnessed the product of the tech revolution or got disrupted by others who did it better. The software, data and insurance sellers whose shares have been battered in the past two weeks are like the bricks-and-mortar retailers of the 1990s, the media companies of the inter-war years or the freight companies of the 19th century.
The biggest difference perhaps, this time, is the remarkable speed at which this technology can be harnessed, combined with a winner-takes-all tendency in a world where scale is paramount and the marginal cost of every new customer is close to zero.
Economists have been clear for decades on the way new tech can deliver growth and prosperity, but usually not painlessly. “Creative destruction,” Joseph Schumpeter called it. AI will be no exception.