Microsoft and Google’s owner Alphabet have quashed investor scepticism around the vast sums spent on developing artificial intelligence, after being boosted by rampant corporate demand for their cloud computing services.

The combined market value of the two US tech giants rose by more than $250bn on Friday, a day after each reported double-digit revenue growth in their first-quarter results to comfortably beat analysts’ expectations. Shares in Amazon and Nvidia, two other beneficiaries of AI spending, also rose by around 3 and 6 per cent respectively.

This week’s earnings reports from Microsoft and Alphabet have soothed market anxiety about the huge jumps in spending on the infrastructure needed to power AI chatbots such as OpenAI’s ChatGPT and Google’s Gemini, as well as several other companies experimenting new AI models.

Meanwhile, advertising revenue at Google also rose, suggesting that AI-powered chatbots are yet to hit usage of the world’s dominant search engine. Jim Tierney, head of US growth at AllianceBernstein, said that Alphabet’s first-quarter results reported on Thursday “didn’t lay the questions [about AI] to rest. But there was so much good stuff elsewhere, it buys them more time”.

Analysts at Baird estimate that capital expenditures by Alphabet, Amazon, Microsoft and Meta this year will total about $188bn, almost 40 per cent more than in 2023. Electric-car maker Tesla said it had invested $1bn in AI in the first quarter and would accelerate spending on chips and automated driving.

The bullish outlook from members of the “Magnificent Seven” US tech bellwethers could reignite the AI-fuelled rally that accounted for most of the gains on US stock markets in 2023. This had faltered at the start of the year as pessimism spread about runaway tech spending and broader concerns about interest rates and conflict in the Middle East.

Alphabet shares jumped 10 per cent on Friday, a rise helped by the company paying the first dividend in its history and boosting its market capitalisation past the $2tn threshold. Microsoft, the world’s most valuable company and OpenAI’s biggest backer, rose almost 2 per cent to climb back above $3tn.

Those gains stand in contrast to Meta’s 11 per cent drop on Thursday after the Facebook parent said it would “invest aggressively” in new AI products such as chatbots, despite generating only limited returns from them so far. Meta’s finance chief Susan Li said capital expenditure would rise to $40bn this year and go even further in 2025, projections that overshadowed a 91 per cent increase in first-quarter net income.

But for those building cloud infrastructure, investors took even bolder AI spending plans in their stride. Google chief financial officer Ruth Porat said capital expenditure would jump 50 per cent or more to at least $48bn this year.

“After what seemed like a year-plus of coming from behind [on AI], we believe Google is beginning to go on the offensive,” said analysts at JPMorgan. 

Microsoft finance chief Amy Hood unveiled a 79 per cent year-on-year leap in quarterly capital expenditure to $14bn, before adding that even more funding for data centres was required because “AI demand is a bit higher than our available capacity”.

Such is the rapid growth in demand for AI services from start-ups such as OpenAI and Anthropic, as well as from large corporate customers, that many necessary components including chips and power supplies have become scarce.

“If you’re not engaging AI actively and aggressively you’re doing it wrong,” Nvidia chief Jensen Huang said at an event organised by payments company Stripe on Wednesday.

“Your company is not going to go out of business because of AI,” he said. “It’s going to go out of business because another company used AI. There’s no question about that.”

The first-quarter performance eases pressure on Alphabet chief Sundar Pichai, who has faced criticism for letting Google lose the initiative to Microsoft in consumer and enterprise AI products after the latter’s $13bn partnership with OpenAI.

Google had to pull image generation in its own flagship AI system, Gemini, following a furore over its inaccurate historical depiction of different ethnicities and genders.

“Google has faced near-constant critique around the inevitable AI-led disruption to search, a string of PR mis-steps that questioned whether Google was too far behind in AI or too ‘woke’ to make it,” said Bernstein analyst Mark Shmulik. “Google needed to be perfect, or face a repeat of being penalised for micro-misses.”

Revenue at Google’s core search-linked advertising business also rose 13 per cent. But longer-term, Pichai still faces questions on whether chatbots that provide instant answers will start to eat away at usage of its ubiquitous search engine.

He told analysts that early experiments of using generative AI to give more comprehensive answers to search queries “improves user satisfaction”. He added: “I’m comfortable and confident that we’ll be able to manage the monetisation transition here well.”

Other companies are joining the spending spree on AI. Both Apple and Amazon, which report first-quarter earnings next week, have said they will also invest heavily in computing power and staff to improve their products.

However, Microsoft’s Azure offering “is the only software business that is benefiting from AI at this point in the cycle”, said Brad Sills, research analyst at Bank of America. “Microsoft remains ahead of the curve in this massive new cycle.”

Additional reporting by George Steer in New York, George Hammond in San Francisco and Philip Stafford in London

CNN
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Jeremy Cooper, a former paramedic in Aurora, Colorado, was sentenced to four years probation, 14 months of work release and 100 hours of community service on Friday.

Cooper and another paramedic, Peter Cichuniec, were found guilty of criminally negligent homicide in December in the death of Elijah McClain, a 23-year-old Black man, who was subdued by police and injected with ketamine on August 24, 2019.

Both paramedics had pleaded not guilty to the felony charges. Cichuniec was sentenced last month in a Colorado courtroom to five years in prison, the minimum.

Prosecutors had argued the paramedics acted recklessly in administering a large amount of the powerful sedative ketamine to McClain, who had been violently subdued by police after they said McClain was in a state of “excited delirium.”

A revised autopsy report released in 2022 listed McClain’s cause of death as “complications of ketamine administration following forcible restraint.”

Cooper’s sentencing brings the case to a close, but at the hearing, McClain’s mother, Sheneen, urged the judge to hold Cooper accountable.

Speaking of Cooper, she said, “You cannot evoke my son’s name to absolve yourself of your own sinful nature.” And referring to Cooper and the other paramedics and police at the scene, she added, “They all failed the city of Aurora.”

The paramedics had testified during the trial they were following their training for treating patients experiencing “excited delirium,” a controversial term describing extreme agitation generally applied to people being subdued by police. The term is not recognized as a diagnosis by major medical associations, including the American Medical Association.

Paramedics rarely face charges in such cases as they are typically considered local government agents protected by statutory immunities where injury and death can occur even when they abide by their medical training.

The criminal trial against the two paramedics was unparalleled, CNN previously reported.

McClain’s case received renewed scrutiny following the police killings of George Floyd, Breonna Taylor, and others that led to massive protests across the country.

And after a social media outcry demanding an independent investigation into McClain’s death, Colorado Gov. Jared Polis announced in June 2020 his administration would reexamine the case, answering a call the victim’s family had been making for almost a year.

The charges against the five first responders stemmed from McClain’s arrest, when Aurora, Colorado, police officers responded to a call about a “suspicious person” wearing a ski mask, according to the indictment. McClain, a massage therapist and musician, was walking home from a convenience store carrying a plastic bag with iced tea, when the officers confronted him, wrestled him to the ground and placed him in a carotid hold, cutting off the blood flow to his brain and rendering him unconscious.

Paramedics were called to the scene and injected McClain with a dose of the powerful sedative ketamine appropriate for a 200-pound person, even though he weighed just 143 pounds. McClain suffered a heart attack on the way to a hospital and was pronounced dead three days later.

During the trial, both paramedics admitted to administering a large amount of ketamine to McClain based on an inaccurate overestimation of his weight. Additionally, Cichuniec told prosecutors he made the decision to administer the 500-milligram dosage without asking McClain for his height or weight because he was experiencing “excited delirium.”

The three Aurora police officers who subdued McClain, officers Randy Roedema, Jason Rosenblatt and Nathan Woodyard, also faced trial for their involvement in the incident.

“By the time he was placed on the gurney, Mr. McClain appeared unconscious, had no muscle tone, was limp, and had visible vomit coming from his nose and mouth,” the indictment said. “(Officer) Roedema said he heard Mr. McClain snoring, which can be a sign of a ketamine overdose.”

Roedema was found guilty of criminally negligent homicide and assault and was sentenced to 14 months in prison, while Rosenblatt and Woodyard were acquitted of all charges.

Dr. Stephen Cina, the pathologist who signed the autopsy report, wrote he saw no evidence injuries inflicted by police contributed to McClain’s death, and McClain “would most likely be alive but for the administration of ketamine.”

The use of ketamine by emergency responders to tranquilize people against their will is controversial and has triggered investigations in multiple states.

CNN’s Emma Tucker and Eric Levenson contributed to this report.

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Another light of the London Stock Exchange firmament is going out. Darktrace has accepted a £4.3bn offer from US private equity investor Thoma Bravo. That the UK market’s lone cyber security name is leaving will, of itself, raise eyebrows. That it is willing to do so for a relatively low price is a reflection of its troubled life as a public company. 

None of this is supposed to imply that Thoma Bravo’s latest offer — which follows an aborted approach in 2022 — is devoid of attractions. With $138bn of assets under management, it is one of the largest software-focused investors in the world and can support Darktrace’s strategy. It can use its clout to help the UK group expand its US client base. And it can provide Darktrace with capital and M&A expertise to snap up other companies in the fragmented cyber security space.

Financially, however, Thoma Bravo’s bid doesn’t look like a knockout. True, at 620p a share Darktrace is getting a 44 per cent premium on its three-month average share price, and a 148 per cent premium on its IPO price three years ago. That may explain why long-term investors KKR and Summit Partners have committed to tender their 11 per cent of the company, as have directors and insiders with a further 3 per cent. 

But that isn’t the whole story. Darktrace has long been poorly valued. Even at the offer price, it is only worth 7.3 times 2024 sales, on Panmure Gordon estimates. By contrast, US cyber security group CrowdStrike trades at 17 times revenues, and Palo Alto at 11.5 times. These companies are giants, compared to Darktrace, and scale commands a premium. Yet it is hard to shake the impression that Darktrace may be selling itself cheaply, especially given its improving results and the recent share price run.

By accepting Thoma Bravo’s offer, of course, Darktrace has in effect put itself in play. “Irrevocable” commitments, like those made by 14.4 per cent of shareholders, can be undone. Other suitors may yet emerge, pushing up the premium.

But the cyber specialist, still among the better performers of the IPO crop of 2021, has had a very bumpy three-year ride as a public company. It has had to deal with accounting concerns, vocal short sellers and its uncomfortable association with Autonomy’s Mike Lynch, Darktrace’s co-founder who is facing a fraud trial in the US where he has pleaded not guilty.

All that comes before you get to the much-discussed and debated valuation discount for UK-listed stocks. Perhaps it is little wonder that Darktrace did not hold out for top dollar.

camilla.palladino@ft.com