Wedgewood Partners’ Views on Microsoft’s (MSFT) Capital Expenditure

Soumya Eswaran Fri, July 17, 2026 at 9:49 AM EDT 3 min read **

• MSFT

Wedgewood Partners**, an investment management company, released its first-quarter 2026 investor letter. A copy of the letter can be downloaded here. Wedgewood Composite delivered a net return of 9.4% in the second quarter compared to 15.2% for the Standard & Poor's 500 Index, 16.7% for the Russell 1000 Growth Index, and 13.9% for the Russell 1000 Value Index. The firm is optimistic about the long-term growth of hyperscalers and has increased its investments in this sector, citing their significant earnings potential and crucial role in AI adoption. Capital has also been redirected towards technology hardware stocks, especially semiconductors, which now make up a larger share of the S&P 500 Index. Semiconductor stocks have benefited from hyperscalers' spending, but the firm expresses caution about cyclical risk and volatility. However, the momentum-driven market negatively affected the Wedgewood fund's high-quality stocks, leading to a 25% return over the past 15 months, significantly underperforming the 90% gain of the S&P 500 Momentum ETF (SPMO). In addition, please check the Fund's top five holdings to know its best picks in 2026.

In its Q2 2026 investor letter, Wedgewood Partners 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 16, 2026, Microsoft Corporation (NASDAQ:MSFT) closed at $401.10 per share. One-month return of Microsoft Corporation (NASDAQ:MSFT) was 3.55%, and its shares lost 22.77% over the past 52 weeks. Microsoft Corporation (NASDAQ:MSFT) has a market capitalization of $2.98 trillion.

Wedgewood Partners stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2026 investor update:

** "Although Microsoft Corporation** (NASDAQ:MSFT), Amazon, and Meta have different business models and were not necessarily top drivers of performance during the quarter, we view their investment opportunity set, from both a compounding and returns perspective and a component-cost hedge perspective, as similar to Alphabet's.

Microsoft ended the most recent quarter with average gross assets of more than $585 billion (trailing two years), up 22%, yet generated $170 billion in gross cash flow over the prior four quarters, up 27% from a year ago. Again, these are astonishing figures: Microsoft added an average of $100 billion in assets and $27 billion in incremental cash flows. The Company is achieving nearly 30% returns while compounding the assets that generate those returns at more than 20% - extraordinary! On top of that, Microsoft reportedly has an investment in OpenAI worth over $100 billion, so we think these huge investment gains, if realized, also effectively serve as a hedge against commodity inflation, particularly incremental DRAM related capex over the coming years."

** Story Continues Microsoft (MSFT) Stock: Truist Raises Price Target to $675, Reiterates Buy 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 thebest short-term AI stock**.

In another article, we covered Microsoft Corporation (NASDAQ:MSFT) and shared the list of best quantum computing stocks to buy and hold forever. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.