L1 Capital, an investment management firm, released its "L1 Capital International Fund" (unhedged) second-quarter 2026 investor letter. A copy of the letter can be downloaded here. The letter discusses the current investment environment as a 'two-speed' but resilient global economy, accompanied by an uncertain future. The letter explores the potential of an AI bubble, distinguishing between strong fundamentals and speculative momentum. Additionally, the market displays a 'narrow' character, marked by high exuberance and pronounced over-pessimism. Against this backdrop, the Fund returned +2.6% (net of fees) during the June 2026 quarter, compared to the benchmark return of +12.5% (all in A$). The underperformance was driven more by which investments were not held in the Fund than by which investments were held in the Fund. The Fund remains focused on quality, valuation and the avoidance of permanent capital loss, and believes the portfolio is positioned to deliver attractive risk-adjusted returns for patient investors. In addition, you can check the Fund's top five holdings to know its best picks in 2026.
In its Q2 2026 investor letter, L1 Capital International Fund highlighted Microsoft Corporation (NASDAQ:MSFT). Microsoft Corporation (NASDAQ:MSFT) is a multinational software company that develops and supports software, services, devices, and solutions, holding dominant positions in software, cloud infrastructure, generative AI, and gaming. On July 17, 2026, Microsoft Corporation (NASDAQ:MSFT) closed at $393.82 per share. One-month return of Microsoft Corporation (NASDAQ:MSFT) was 7.21%, and its shares lost 22.79% over the past 52 weeks. Microsoft Corporation (NASDAQ:MSFT) has a market capitalization of $2.93 trillion.
L1 Capital International Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2026 investor update:
"Particularly attentive long-term followers of the Fund may have noticed that Microsoft Corporation (NASDAQ:MSFT) is no longer among the top 10 holdings. We have rebalanced the portfolio weights between Alphabet and Microsoft. We remain comfortable with the Azure hyperscaler business of Microsoft, although we believe the business may be less well positioned compared to Alphabet's GCP and Amazon's AWS hyperscaler businesses:
• Microsoft is behind in developing its own chips (GPUs, CPUs, ASICs) to support AI workloads at lower cost and reduce reliance on Nvidia. • Previously, Azure pulled back on some data centre investments and is now capacity constrained and more dependent on neocloud capacity for immediate needs. • Azure is more OpenAI-centric and less Anthropic-centric, and recently Anthropic has been out-executing OpenAI. Azure does not just serve OpenAI and is a trusted partner of many of the largest organisations globally. We expect Azure to deliver strong growth, and sound returns on its massive capital expenditure.
Microsoft is, of course, considerably more than Azure. Some businesses operated by Microsoft, such as Xbox, are struggling, while others such as the Windows operating system franchise face cyclical challenges. Microsoft 365 remains of critical importance to the Microsoft investment case and valuation, particularly the ongoing development of Copilot. Management changes have been made to improve performance. The new business head, Jacob Andreou, summarised the situation well in the highlighted quote. Microsoft needs to lift its game and execute better to clear the higher bar."
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