Eagle Capital Management, an investment management company, released its second quarter 2026 investor letter. A copy of the letter can be downloaded here. In the quarter, Eagle Capital Management discussed how enthusiasm around AI capital spending has driven strong S&P 500 earnings growth while also increasing risks from elevated valuations, concentrated demand, and aggressive investment assumptions. Eagle remains a strong believer in AI but prefers constructing a portfolio that can perform across multiple outcomes rather than relying on one forecast. The firm believes current earnings can overstate underlying economics because semiconductor equipment is depreciated over several years, while free cash flow growth remains much weaker. It also expects competition and additional capacity across AI labs, hyperscalers, and semiconductors to eventually create winners and losers. These dynamics are encouraging Eagle to recycle capital toward attractive opportunities outside the most crowded AI trades while maintaining selective exposure to high quality beneficiaries. The portfolio trades at a 20% market discount with faster expected EPS growth. Please review the Strategy’s top five holdings for key selections.
In its second-quarter 2026 investor letter, Eagle Capital Management highlighted NVIDIA Corporation (NASDAQ:NVDA). NVIDIA Corporation (NASDAQ:NVDA) is a leading data center-scale AI infrastructure company that operates through Compute & Networking and Graphics segments. On August 18, 2026, NVIDIA Corporation (NASDAQ:NVDA) closed at $219.74 per share. The one-month return of NVIDIA Corporation (NASDAQ:NVDA) was 3.62% and its shares gained 25.28% over the past 52 weeks. NVIDIA Corporation (NASDAQ:NVDA) has a market capitalization of $5.32 trillion.
Eagle Capital Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2026 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) has dominated the market for Al accelerator chips and has become the most profitable company in the U.S. However, its largest customers have internal silicon programs that are likely to reduce NVIDIA’s share over time. Google TPUs and Amazon’s Trainium chips are the most competitive, but Microsoft, Meta, OpenAl, and Anthropic all have programs in various stages. When the market was small, custom programs were uneconomic. At today’s scale, R&D can be amortized across the larger base. Moreover, NVIDIA’s 75-80% gross margin implies it is marking up Taiwan Semiconductor (“TSMC”) wafers by 4-5x. Custom programs don’t have to be as good as NVIDIA to offer better price/performance to the end customer.
NVIDIA is investing in the neocloud industry to support demand for its chips and weaken hyperscalers’ position. Ironically, by selling its chips at high prices, it makes the neoclouds high-cost operators, and therefore less likely to succeed against vertically integrated hyperscalers over the long term. As NVIDIA’s market share crests and begins to fall, margins may follow as it faces both direct and indirect competition from its largest customers.”
NVIDIA Corporation (NASDAQ:NVDA) is in fourth position on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 275 hedge fund portfolios held NVIDIA Corporation (NASDAQ:NVDA) at the end of the fourth quarter, compared to 264 in the previous quarter. In the first quarter of fiscal year 2027, NVIDIA Corporation (NASDAQ: NVDA) reported revenues of $82 billion, achieving an impressive 85% year-over-year growth. While we acknowledge the risk and potential of NVIDIA Corporation (NASDAQ:NVDA) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVIDIA Corporation (NASDAQ:NVDA) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered NVIDIA Corporation (NASDAQ:NVDA) and shared Polen Focus Growth Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
