Here’s Wedgewood Partners’ Views on Microsoft (MSFT)

Core Insights - Wedgewood Partners' third-quarter 2025 investor letter indicates that AI stocks continue to dominate Wall Street's interest, with the Wedgewood Composite achieving a net return of 5.9%, underperforming compared to the S&P's 8.1% and the Russell 1000 Growth Index's 10.5% [1] Company Summary: Microsoft Corporation (NASDAQ:MSFT) - Microsoft Corporation reported a one-month return of 1.47% and a 52-week gain of 21.92%, with its stock closing at $517.66 on October 21, 2025, and a market capitalization of $3.848 trillion [2] - The company has invested heavily in capital expenditures, adding over 2 gigawatts of data center capacity in the past year, resulting in gross property, plant, and equipment, and capitalized leases reaching nearly $370 billion, an increase of $260 billion since fiscal 2020 [3] - Gross cash flow has risen from $60 billion in 2020 to over $140 billion in 2025, indicating a consistent return on capital in the high 20s, which is considered an attractive return given the scale of investment [3] Market Position - Microsoft ranks second among the 30 Most Popular Stocks Among Hedge Funds, with 294 hedge fund portfolios holding its stock at the end of Q2 2025, up from 284 in the previous quarter [4] - In Q4 of fiscal year 2025, Microsoft reported revenue of $76.4 billion, marking an 18% increase, or 17% when adjusted for constant currency [4]