Investment management company Vulcan Value Partners recently released its first-quarter 2026 investor letter. A copy of the letter can be downloaded here. The firm focuses on improving long-term returns and lowering risk over short-term results. In the quarter, the Large Cap Composite (Net) returned -14.1%, the Small Cap Composite (Net) returned -6.8%, the Focus Composite (Net) returned -19.1%, the Focus Plus Composite (Net) returned -19.1% as well as the All-Cap Composite (Net) returned -13.5%. Throughout 2025 and escalating to the first quarter of 2026, the market is experiencing heightened volatility related to AI’s potential, leading to mispricing of some strong companies. The current market turbulence presents opportunities for long-term investors willing to accept short-term volatility in stable-valued companies and improve the margin of safety. The letter identified businesses into three groups with perceived /real AI disruption risk: Software, Alternative Asset Managers, and indirectly impacted businesses. The firm highlights that its investment strategy aims to leverage this volatility to reduce risk and increase returns in the long term. In addition, please check the Firm’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Vulcan Value Partners mentioned Microsoft Corporation (NASDAQ:MSFT) as a material detractor from performance. Microsoft Corporation (NASDAQ:MSFT) is a multinational software company that develops and supports software, services, devices, and solutions. On April 21, 2026, Microsoft Corporation (NASDAQ:MSFT) stock closed at $424.16 per share. One-month return of Microsoft Corporation (NASDAQ:MSFT) was 15.10%, and its shares gained 14.07% over the past 52 weeks. Microsoft Corporation (NASDAQ:MSFT) has a market capitalization of $3.14 trillion.
Vulcan Value Partners stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q1 2026 investor letter:
“Microsoft Corporation (NASDAQ:MSFT)is the world’s largest software company with a broad range of offerings including Microsoft office, gaming, Azure cloud computing, LinkedIn, and more. Microsoft also has a large investment in OpenAI which allows them to have full access to all of OpenAI’s intellectual property. We think Microsoft is one of the most competitively entrenched businesses in the world and will be a beneficiary from AI.
Microsoft delivered another strong quarter, with revenues up +15% and operating profits up +19% on a constant currency basis. Our value grew nicely. Microsoft’s cloud business, Azure, grew at a robust +38% constant currency rate. Microsoft continues to invest heavily in capital spending as it continues to build cloud capacity to meet customer demand, which continues to outstrip supply. Despite this heavy capital spending, which has attractive returns, free cash flow remains very robust.
We believe the company is trading at a remarkably attractive valuation. We believe we are paying roughly fair value for its intelligent cloud business, including Azure, and getting the software business for free. Alternatively, we are paying roughly fair value for the software business and getting its intelligent cloud business for free. We think we own Microsoft with a substantial margin of safety.”
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 Alger Capital Appreciation Fund’s views on the company. 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.
