6 days ago 3

Should You Hold Microsoft (MSFT) Amid Weak Operating Conditions?

Soumya Eswaran

Tue, Apr 15, 2025, 4:29 AM 3 min read

L1 Capital, an investment management firm, released its “L1 Capital International Fund” (unhedged) first quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund returned 0.1% (net of fees) in the March quarter surpassing the benchmark return by 2.6% (all in Australian dollars). The Australian dollar appreciated 1.0% against the U.S. dollar in the quarter and 3.4% against the Euro. During the first quarter of 2025, the market performance by sector was mixed. In addition, the letter discussed on trade deficits, Trump administration’s Reciprocal Tariffs, implications of Liberation Day and the shift in Trump’s trade policy and how the firm is managing the fund in this volatile environment. Please check the fund’s top five holdings to know its best picks in 2025.

In its first quarter 2025 investor letter, L1 Capital International Fund emphasized stocks such as Microsoft Corporation (NASDAQ:MSFT). Microsoft Corporation (NASDAQ:MSFT) is a multinational software company that develops and supports software, services, devices, and solutions. The one-month return of Microsoft Corporation (NASDAQ:MSFT) was -1.12%, and its shares lost 6.24% of their value over the last 52 weeks. On April 14, 2025, Microsoft Corporation (NASDAQ:MSFT) stock closed at $387.81 per share with a market capitalization of $2.883 trillion.

L1 Capital International Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q1 2025 investor letter:

"The Fund has investments in three of the Magnificent 7: Amazon.com, Microsoft Corporation (NASDAQ:MSFT), and a smaller position size in Alphabet. As noted, the market remains concerned about elevated capital expenditure, the returns the leading Cloud and AI service providers will earn on these immense levels of capex and, more recently, concerns on overall cloud and AI services demand as well as increasing general economic weakness. There are also increasing concerns that Alphabet’s competitive position in Search will not be as strong in an AI-centric world. More recently, trade policy concerns are pressuring all companies, and there have been huge equity market flows from short term investors derisking their portfolios as well as likely passive investor selling pressure. While operating conditions have weakened to some extent, at current share prices, all three businesses are trading well below our base case fair value range and offer highly attractive risk adjusted returns for investors with a longer-term investment horizon.”