Jacob Andreou: "Microsoft (MSFT) Needs to Lift Its Game and Execute Better to Clear the Higher Bar"

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."

Microsoft Corporation (NASDAQ:MSFT) ranks second on our list of 40 Most Popular Stocks Among Hedge Funds . According to our database, 282 hedge fund portfolios held Microsoft Corporation (NASDAQ:MSFT) at the end of the first quarter, compared to 312 in the previous quarter. In the third quarter of fiscal 2026, Microsoft Corporation (NASDAQ:MSFT) reported revenue of $82.9 billion, marking an increase of 18% and 15% in constant currency. While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock .

In another article , we covered Microsoft Corporation (NASDAQ:MSFT) and shared Wedgewood Partners' 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.

Sinergia Empresarial continuará el seguimiento de esta información sobre jacob Andreou: "Microsoft (MSFT) Needs to Lift Its Game and Execute Better to Clear the Higher Bar" y ampliará la cobertura conforme se confirmen nuevos elementos relevantes para el ecosistema empresarial.