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Darktrace, one of the U.K.’s largest cybersecurity companies, was founded in 2013 by a group of former intelligence experts and mathematicians.

Omar Marques | SOPA Images | LightRocket via Getty Images

Cybersecurity company Darktrace, one of the U.K.’s most prominent tech names, has found itself under attack from short sellers.

The company, whose tools allow firms to combat cyberthreats with artificial intelligence, was last week targeted in a report by New York-based asset manager Quintessential Capital Management.

QCM, whose stated aim is “exposing fraud and criminal conduct in public companies around the world,” claims it has had a 100% success rate in its activist campaigns.

The company told Reuters it holds a short position of 1.3% in Darktrace shares.

London-based hedge fund Marshall Wace also shorted Darktrace, according to data site Breakout Point.

Short selling is a strategy in which investors bet on the price of a stock going down in value. A trader borrows the stock and then sells it on the assumption that it will fall, before buying it back at a discounted price and pocketing the spread.

What is Darktrace?

Darktrace, one of the U.K.’s largest cybersecurity companies, was founded in 2013 by a group of former intelligence experts and mathematicians.

The Cambridge-headquartered company says its technology uses AI to detect and respond to cyberthreats in a business’ IT systems.

The company floated on the London Stock Exchange in 2021, and its debut was seen as a key victory in the U.K.’s bid to lure more high-growth tech startups to the London market after its withdrawal from the European Union.

The stock’s performance following the listing has been underwhelming. After initially rising to an all-time high of £9.45 ($11.58) in October 2021, Darktrace shares have since plunged dramatically in tandem with a broader slump in global tech stocks.

As of Monday afternoon, Darktrace shares were trading at a price of £2.32, down 37% in the last 12 months.

Darktrace share price performance in the last 12 months.

In August, the firm opened takeover talks with U.S. private equity firm Thoma Bravo. However, Thoma Bravo walked away from the deal a month later after the two sides failed to reach an agreement.

Why is it under attack?

On Tuesday, U.S. hedge fund QCM said it had taken a short position out against Darktrace and published a lengthy report detailing alleged flaws in Darktrace’s accounting.

QCM said that, following an investigation into Darktrace’s business model and selling practices, it was “deeply skeptical about the validity of Darktrace’s financial statements” and believed sales and growth rates may have been overstated.

“We would like to give our strongest possible warning to investors and believe that DT’s equity is overvalued and liable to a major correction, or worse,” QCM said in the report.

Darktrace was accused by QCM of engaging in “channel stuffing” and “round-tripping” — activities that artificially inflate a company’s reported sales — involving individuals with ties to organized crime, money laundering and fraud.

Darktrace didn’t directly address those allegations. On Wednesday, the firm’s CEO Poppy Gustafsson issued a statement defending the company from what she called “unfounded inferences” made by QCM.

Shares of Adani groups continue to fall in Friday's session

Separately, QCM suggested Darktrace may have inflated its revenues by booking unearned revenues as actual sales.

The company occasionally books revenue from payments for contracts it receives before delivering its service to clients as deferred revenue, according to the report.

This is not uncommon among subscription-based software companies. However, QCM noted deferred revenue as a percentage of Darktrace’s sales had dropped between 2018 and 2022, suggesting the firm “may have increasingly been booking unearned revenue as actual sales.”

In response, Darktrace said: “Rarely, customers will pay full contract values in advance but because this is infrequent, non-current deferred revenue balances will decline as these contracts run down unless there is another unusual, large, in-advance payment.”

QCM alleged Darktrace may have tried to fill gaps in its receivables left by clients dropping out of sales negotiations through marketing sponsorships with indebted resellers and using shell companies to pose as phantom clients.

“Organisations that transact with the channel will typically co-host marketing events with their partners. Partner marketing events are a normal course of business for almost all software businesses and Darktrace is no different,” Darktrace said Wednesday.

“This has been, and remains, a very small part of Darktrace’s marketing and the costs of them over the last five years has consistently been substantially below 0.5% of Darktrace’s revenue,” Darktrace added.

Darktrace was not immediately available for comment when contacted by CNBC.

Separately Wednesday, Darktrace said it would embark on a share buyback worth up to £75 million ($92 million) to be completed no later than Oct. 31, 2023.

The Lynch connection

Mike Lynch, former CEO of Autonomy.

Hollie Adams | Bloomberg via Getty Images

Lynch founded the enterprise software firm Autonomy, whose sale to Hewlett-Packard was mired in scandal over accusations that Lynch plotted to inflate the value of Autonomy before it was bought by HP for almost $11 billion in 2011.

In 2022, a British judge ruled in favor of HP in a civil fraud case against Lynch. Lynch, an influential figure in the U.K.’s tech scene, faces a possible criminal trial in the U.S. after the U.K. government approved his extradition last year.

He has repeatedly denied the allegations.

Several executives at Darktrace, including Gustafsson and Chief Strategy Officer Nicole Eagan, previously worked for Autonomy.

The QCM report also raised concerns over the connections between Darktrace and Autonomy.

“Darktrace has been led or strongly influenced by many of the very same individuals that participated in the Autonomy debacle,” QCM said in its report.

“If our allegations are confirmed, we expect Darktrace to follow the same tragic destiny of its predecessor, Autonomy,” QCM said.

Lynch is reportedly no longer involved with Darktrace’s management, but remains a significant shareholder.

Lynch is no longer involved with Darktrace’s management, but remains its sixth-largest shareholder, according to Refinitiv Eikon data.

Meanwhile, Darktrace is also suffering from uncertainty related to the wider macroeconomic environment. The company lowered its forecast for annual recurring revenue growth for the year ending June 2023 to between 29% and 31.5%, down from an earlier forecast of 31% to 34%, citing weaker customer growth.

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How TikTok’s rise sparked a short-form video race

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How TikTok’s rise sparked a short-form video race

TikTok’s grip on the short-form video market is tightening, and the world’s biggest tech platforms are racing to catch up.

Since launching globally in 2016, ByteDance-owned TikTok has amassed over 1.12 billion monthly active users worldwide, according to Backlinko. American users spend an average of 108 minutes per day on the app, according to Apptoptia.

TikTok’s success has reshaped the social media landscape, forcing competitors like Meta and Google to pivot their strategies around short-form video. But so far, experts say that none have matched TikTok’s algorithmic precision.

“It is the center of the internet for young people,” said Jasmine Enberg, vice president and principal analyst at Emarketer. “It’s where they go for entertainment, news, trends, even shopping. TikTok sets the tone for everyone else.”

Platforms like Meta‘s Instagram Reels and Google’s YouTube Shorts have expanded aggressively, launching new features, creator tools and even considering separate apps just to compete. Microsoft-owned LinkedIn, traditionally a professional networking site, is the latest to experiment with TikTok-style feeds. But with TikTok continuing to evolve, adding features like e-commerce integrations and longer videos, the question remains whether rivals can keep up.

“I’m scrolling every single day. I doom scroll all the time,” said TikTok content creator Alyssa McKay.

But there may a dark side to this growth.

As short-form content consumption soars, experts warn about shrinking attention spans and rising mental-health concerns, particularly among younger users. Researchers like Dr. Yann Poncin, associate professor at the Child Study Center at Yale University, point to disrupted sleep patterns and increased anxiety levels tied to endless scrolling habits.

“Infinite scrolling and short-form video are designed to capture your attention in short bursts,” Dr. Poncin said. “In the past, entertainment was about taking you on a journey through a show or story. Now, it’s about locking you in for just a few seconds, just enough to feed you the next thing the algorithm knows you’ll like.”

Despite sky-high engagement, monetizing short videos remains an uphill battle. Unlike long-form YouTube content, where ads can be inserted throughout, short clips offer limited space for advertisers. Creators, too, are feeling the squeeze.

“It’s never been easier to go viral,” said Enberg. “But it’s never been harder to turn that virality into a sustainable business.”

Last year, TikTok generated an estimated $23.6 billion in ad revenues, according to Oberlo, but even with this growth, many creators still make just a few dollars per million views. YouTube Shorts pays roughly four cents per 1,000 views, which is less than its long-form counterpart. Meanwhile, Instagram has leaned into brand partnerships and emerging tools like “Trial Reels,” which allow creators to experiment with content by initially sharing videos only with non-followers, giving them a low-risk way to test new formats or ideas before deciding whether to share with their full audience. But Meta told CNBC that monetizing Reels remains a work in progress.

While lawmakers scrutinize TikTok’s Chinese ownership and explore potential bans, competitors see a window of opportunity. Meta and YouTube are poised to capture up to 50% of reallocated ad dollars if TikTok faces restrictions in the U.S., according to eMarketer.

Watch the video to understand how TikTok’s rise sparked a short form video race.

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Elon Musk’s xAI Holdings in talks to raise $20 billion, Bloomberg News reports

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Elon Musk's xAI Holdings in talks to raise  billion, Bloomberg News reports

The X logo appears on a phone, and the xAI logo is displayed on a laptop in Krakow, Poland, on April 1, 2025. (Photo by Klaudia Radecka/NurPhoto via Getty Images)

Nurphoto | Nurphoto | Getty Images

Elon Musk‘s xAI Holdings is in discussions with investors to raise about $20 billion, Bloomberg News reported Friday, citing people familiar with the matter.

The funding would value the company at over $120 billion, according to the report.

Musk was looking to assign “proper value” to xAI, sources told CNBC’s David Faber earlier this month. The remarks were made during a call with xAI investors, sources familiar with the matter told Faber. The Tesla CEO at that time didn’t explicitly mention any upcoming funding round, but the sources suggested xAI was preparing for a substantial capital raise in the near future.

The funding amount could be more than $20 billion as the exact figure had not been decided, the Bloomberg report added.

Artificial intelligence startup xAI didn’t immediately respond to a CNBC request for comment outside of U.S. business hours.

Faber Report: Elon Musk held call with current xAI investors, sources say

The AI firm last month acquired X in an all-stock deal that valued xAI at $80 billion and the social media platform at $33 billion.

“xAI and X’s futures are intertwined. Today, we officially take the step to combine the data, models, compute, distribution and talent,” Musk said on X, announcing the deal. “This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”

Read the full Bloomberg story here.

— CNBC’s Samantha Subin contributed to this report.

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Alphabet jumps 3% as search, advertising units show resilient growth

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Alphabet jumps 3% as search, advertising units show resilient growth

Alphabet CEO Sundar Pichai during the Google I/O developers conference in Mountain View, California, on May 10, 2023.

David Paul Morris | Bloomberg | Getty Images

Alphabet‘s stock gained 3% Friday after signaling strong growth in its search and advertising businesses amid a competitive artificial intelligence environment and uncertain macro backdrop.

GOOGL‘s pace of GenAI product roll-out is accelerating with multiple encouraging signals,” wrote Morgan Stanley‘s Brian Nowak. “Macro uncertainty still exists but we remain [overweight] given GOOGL’s still strong relative position and improving pace of GenAI enabled product roll-out.”

The search giant posted earnings of $2.81 per share on $90.23 billion in revenues. That topped the $89.12 billion in sales and $2.01 in EPS expected by LSEG analysts. Revenues grew 12% year-over-year and ahead of the 10% anticipated by Wall Street.

Net income rose 46% to $34.54 billion, or $2.81 per share. That’s up from $23.66 billion, or $1.89 per share, in the year-ago period. Alphabet said the figure included $8 billion in unrealized gains on its nonmarketable equity securities connected to its investment in a private company.

Adjusted earnings, excluding that gain, were $2.27 per share, according to LSEG, and topped analyst expectations.

Read more CNBC tech news

Alphabet shares have pulled back about 16% this year as it battles volatility spurred by mounting trade war fears and worries that President Donald Trump‘s tariffs could crush the global economy. That would make it more difficult for Alphabet to potentially acquire infrastructure for data centers powering AI models as it faces off against competitors such as OpenAI and Anthropic to develop largely language models.

During Thursday’s call with investors, Alphabet suggested that it’s too soon to tally the total impact of tariffs. However, Google’s business chief Philipp Schindler said that ending the de minimis trade exemption in May, which created a loophole benefitting many Chinese e-commerce retailers, could create a “slight headwind” for the company’s ads business, specifically in the Asia-Pacific region. The loophole allows shipments under $800 to come into the U.S. duty-free.

Despite this backdrop, Alphabet showed steady growth in its advertising and search business, reporting $66.89 billion in revenues for its advertising unit. That reflected 8.5% growth from the year-ago period. The company reported $8.93 billion in advertising revenue for its YouTube business, shy of an $8.97 billion estimate from StreetAccount.

Alphabet’s “Search and other” unit rose 9.8% to $50.7 billion, up from $46.16 billion last year. The company said that its AI Overviews tool used in its Google search results page has accumulated 1.5 billion monthly users from a billion in October.

Bank of America analyst Justin Post said that Wall Street is underestimating the upside potential and “monetization ramp” from this tool and cloud demand fueled by AI.

“The strong 1Q search performance, along with constructive comments on Gemini [large language model] performance and [AI Overviews] adoption could help alleviate some investor concerns on AI competition,” Post wrote in a note.

WATCH: Gemini delivering well for Google, says Check Capital’s Chris Ballard

Gemini delivering well for Google, says Check Capital's Chris Ballard

CNBC’s Jennifer Elias contributed to this report.

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