AI’s growth stunted: markets reacted
What happened in the world of AI?
The AI scare trade rolled into yet another sector this week. It moved from software and financials into logistics after a press release from Algorhythm Holdings claimed its SemiCab platform can scale freight volumes by 300-400% without additional headcount. That triggered double-digit declines in names such as C.H. Robinson, J.B. Hunt Transportation Services and XPO. Investors once again sold first and asked questions later. What is driving this trend is not confirmed disruption, but the absence of buyers willing to defend any business model labelled “AI risk,” rational or not. This is happening in a market where companies’ stock prices are already high compared to projected future earnings, and which is hypersensitive to fears of shrinking profit margins
How are consumer staple stocks performing?
Capital rotated toward defensive stocks, such as Walmart and Coca-Cola. Consumer staples and utilities saw gains. This reinforces the idea that this is less about companies missing earnings expectations and more about valuation multiples decreasing (when investors are willing to pay less for each dollar of a company’s earnings). Investors reassess valuation in a world where AI is shifting from a margin expansion story (where companies’ profit margins are expected to grow) to a potential margin compression threat (the opposite). High Treasury yields and real interest rates (those adjusted for inflation) continue to be a deterrent for investment in long-duration equities.
How is the U.S. labour market doing?
Meanwhile, U.S. labour data continues to send mixed signals. Initial jobless claims fell to 227,000 from 232,000 the prior week. That remains near multi-decade lows. Job growth was soft, however. Continuing unemployment claims increased this month, having recorded their lowest level since May 2024 in the previous month. Job openings are trending lower, and survey data suggests a tougher employment backdrop. This has created a disconnect that didn’t exist before 2019, when these series moved closely together. Markets are left reconciling a still-resilient headline labour market with growing unease about whether AI-driven productivity gains and sector-specific disruption could eventually weigh on employment and demand. Economists are also looking ahead to a Consumer Price Index expected to be around 0.3% month-over-month for both headline and core, and assessing whether the U.S. Federal Reserve can continue to hold its interest rate.
Looking ahead, the interesting question from here is whether investors regain the confidence to step in and buy the dip in companies suddenly labelled “AI risk”, or whether capital continues rotating toward businesses perceived as insulated from disruption. At some point, valuation matters, and fear exhausts itself. Until buyers are willing to defend these names, the path of least resistance remains rotation toward defensive stocks. After all, you cannot drink a can of AI.
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