Wedgewood Partners, an investment management company, released its first-quarter 2026 investor letter. A copy of the letter can be downloaded here. The Wedgewood Composite returned -6.3% (net) in the first quarter compared to the S&P 500’s -4.3%, the Russell 1000 Growth Index’s -9.8%, and the Russell 1000 Value Index’s 2.1% returns. The letter mentioned the ongoing war, highlighting the swift response of financial and commodities markets to military strikes and geopolitical commentary. Historically, oil shocks have consistently displayed a significant influence on global financial markets. In addition, please check the Fund’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Wedgewood Partners identified Microsoft Corporation (NASDAQ:MSFT) as a leading detractor from the performance. 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 April 28, 2026, Microsoft Corporation (NASDAQ:MSFT) stock closed at $429.25 per share. One-month return of Microsoft Corporation (NASDAQ:MSFT) was 16.21%, and its shares gained 8.60% over the past 52 weeks. Microsoft Corporation (NASDAQ:MSFT) has a market capitalization of $3.19 trillion.
Wedgewood Partners stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q1 2026 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) was a leading detractor from performance in the first quarter. Despite revenue growth of +15%, operating income growth above 20%, and a backlog that more than doubled (to over $600 billion), the stock’s multiple contracted to multi-year lows. Much of the initial negativity during the quarter centered on Microsoft’s capital expenditures, which grew +65%. As we have shown in recent letters, Microsoft’s incremental capital expenditures have yielded excellent returns over the past few years. So, while revenue “only” grew +15% compared to 65% capex growth, the more-than-doubling of the Company’s backlog and the tripling of its commercial bookings are reasonable demand markers that suggest returns on invested capital from this capex cycle are likely to remain strong. Further, Microsoft is the largest shareholder in OpenAI, with a stake worth well over $100 billion based on recent fundraises, a fraction of Microsoft’s $2.75 trillion market cap but close to 10X more than the Company’s initial investments. Microsoft’s capital allocation discipline and track record are sorely underestimated. Lastly, the market began discounting nearly all “seat-based” software stocks on the perception that they could be undermined by emerging AI workflows and competition. Rather, we believe investors are fading large-cap tech to make room for the mega IPOs later this year, particularly OpenAI, Anthropic, and SpaceX (which includes xAI). As these companies provide more disclosure and the market digests this impending glut of issuance, the long-term, complementary, and mission-critical (sticky) nature of Microsoft’s productivity suite will become more evident.”
Microsoft Corporation (NASDAQ:MSFT) ranks second on our list of 40 Most Popular Stocks Among Hedge Funds. According to our database, 312 hedge fund portfolios held Microsoft Corporation (NASDAQ:MSFT) at the end of the fourth quarter, the same as in the previous quarter. While we acknowledge the risk and potential of Microsoft Corporation (NASDAQ:MSFT) 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 Microsoft Corporation (NASDAQ:MSFT) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Microsoft Corporation (NASDAQ:MSFT) and shared the list of most popular stocks on Robinhood in 2026. In its Q1 2026 investor letter, Vulcan Value Partners highlighted Microsoft Corporation’s (NASDAQ:MSFT) strong potential in both its intelligent cloud and software segments. In addition, please check out our hedge fund investor letters Q1 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.
