The Daily Telegraph - Saturday

Darktrace investors spooked by fears it is losing the AI race

- By Matthew Field

HUNDREDS of millions of pounds was wiped from the value of Darktrace after analysts warned it risked falling behind in the artificial intelligen­ce (AI) race.

Shares in the London-listed cybersecur­ity company slumped 11pc yesterday, equivalent to a £225m fall, after a Bank of America report poured cold water on its technology. Analysts at the bank said Darktrace’s “self-learning AI” was “neither unique nor a silver bullet”. They warned Darktrace could become less competitiv­e as a result.

The research note added that Microsoft had committed $20bn (£16bn) on research and developmen­t for security solutions, while the cyber-security sector was increasing­ly “crowded and becoming highly competitiv­e”.

The analysts also questioned how much Darktrace was spending on developing new products, after it spent just £44m on R&D in 2022. Darktrace’s shares fell to 260p yesterday, close to its initial public offering price of 250p.

The company has come under pressure after a series of short-seller attacks.

Its stock has roughly halved in value since talks with private equity collapsed following an approach by US buyout fund Thoma Bravo last year.

Mike Lynch, the British entreprene­ur who helped found the business in 2012 with investment from his fund, Invoke Capital, was earlier this month extradited to the US to face fraud charges over his role in the $11bn sale of software company Autonomy in 2011.

Mr Lynch is no longer involved in running Darktrace, although he is a shareholde­r. He has pleaded not guilty in the US and was ordered to pay a $100m bail bond. In the UK, the High Court refused permission for Mr Lynch to appeal over his extraditio­n in April after a four-year battle against US efforts to force him to stand trial across the Atlantic. He lost a separate case of civil fraud brought by tech giant HP, which acquired Autonomy.

Darktrace sells cyber-security products to blue-chip clients including BT, using AI tools to identify anomalies or intrusions on a customers’ system.

However, a new wave of AI companies such as OpenAI has led to an explosion of interest in using machinelea­rning technologi­es in cyber security.

Last month, Microsoft announced a fresh batch of cyber security tools built using AI tools developed by OpenAI. Microsoft’s Security Copilot is designed to help IT experts quickly identify threats and answer security questions.

However, analysts at Liberum on Thursday had a buy recommenda­tion on Darktrace shares, arguing it traded at a steep discount to US rivals.

Darktrace declined to comment.

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