The $17 Billion Word: 'AI'

Editor's note: Markets tend to overreact to new technology, especially when investors fear disruption. But according to Joel Litman, chief investment officer of our corporate affiliate Altimetry, panic and uncertainty often create opportunity. In this issue, adapted from the Altimetry Daily Authority e-letter, Joel explains why today's AI-driven sell-offs are creating opportunities for disciplined investors...

Also, our offices and the markets will be closed tomorrow for Good Friday. We will return to our normal publishing schedule on Monday. Have a great holiday weekend.

A few weeks ago, a once-struggling karaoke-machine maker blew up the stock market...

Originally named "The Singing Machine Company," Algorhythm got its start in the 1980s. It claimed to be the global leader in portable karaoke machines.

But at-home concerts aren't the booming business they were four decades ago. The Singing Machine Company scraped together a few decent years in the 2010s... licensing to late-night host James Corden's Carpool Karaoke segment.

By 2024, though, revenue was down to just $24 million – a 13-year low.

That's when CEO Gary Atkinson did something drastic. He gave up on karaoke machines... and started chasing AI.

Stories like this are becoming more common today. The simple mention of AI is enough to lead to quick swings in the stock market.

But investors shouldn't treat every headline the same. Some will change industries... and others are just noise.

That's why investors need to learn how to separate the real disruptors from the hype filling this sector...

Not Every AI Announcement Means Disruption

In the middle of 2024, The Singing Machine Company bought a tiny logistics business called SemiCab. A few months later, it changed its name to the more ambiguous Algorhythm (RIME).

Nobody paid much attention to Algorhythm for the next year or so. It officially sold its karaoke business last August. But otherwise, it stayed pretty quiet as shares slid... and slid... and slid.

By November 2025, they'd fallen 99% – putting Algorhythm in danger of being delisted from the Nasdaq. The company needed a miracle to boost shares... and attract a lot more eyeballs.

Suddenly, it got one... and Algorhythm exploded...

Atkinson appeared on Fox Business, claiming Algorhythm's AI-logistics technology could quadruple freight productivity without additional staff. The Wall Street Journal picked up the story. So did CNBC and Bloomberg.

At the time, Algorhythm had a market cap of less than $20 million. Most folks hadn't even heard of it until the Fox Business interview.

But the market lost its mind.

Algorhythm's alleged software posed a direct threat to the transportation and logistics sector.

Logistics provider C.H. Robinson (CHRW) – a $20 billion-plus industry giant – plunged 15% in a day. J.B. Hunt Transport Services (JBHT), a trucking powerhouse worth roughly the same, dropped 5%.

The announcement from a $17 million former karaoke-machine maker wiped out a total of $17.4 billion in market value.

Folks, situations like these shouldn't happen...

But they're becoming more and more common. This year alone, new AI developments have caused several rounds of panic-selling in niche industries. Investors are terrified that tiny AI startups can replicate big Software as a Service ("SaaS") products. It has been dubbed the "SaaSpocalypse."

We saw a similar situation back in January, when AI juggernaut Anthropic updated its Claude Code and Cowork platforms. These tools can compete with ChatGPT... help automate programming projects... and even quickly develop software for the legal and medical fields.

The entire software sector sold off on the news. The S&P Software & Services Select Industry Index plummeted 20%. Many companies that took a hit had nothing to do with those niches.

Some of these updates could be game changers. They could disrupt some of today's biggest companies.

But it's far too early to say for sure.

And in the meantime, multibillion-dollar giants – and entire sectors – have no business selling off every time someone name-drops "AI."

In this market, the biggest winners won't be the companies that talk about AI the most... They'll be the ones actually using it to improve their businesses.

Regards,

Joel Litman

Editor's note: The market is changing fast, especially in tech and AI stocks. That's why our former hedge-fund insider who once turned down George Soros is issuing an urgent warning on April 7. He correctly called the recent "SaaSpocalypse" in tech stocks. Now, he's revealing his strategy publicly for the first time – including the one move he says matters most right now.