Key Highlights

  • Microsoft shares fell 0.7% to $390.90 in recent trading, trimming its market capitalization to $2.98 trillion.
  • L1 Capital International Fund reduced its Microsoft stake, citing lagging progress in developing proprietary AI chips.
  • The fund returned 2.6% in the June 2026 quarter, underperforming its benchmark by nearly 10 percentage points.

Microsoft’s stock slipped Thursday as a major fund manager signaled disappointment with the company’s pace in developing its own artificial intelligence chips. Shares of the software giant dropped 0.7% to $390.90, trimming its market value to $2.98 trillion, as L1 Capital International Fund revealed it had cut its position after rebalancing between Microsoft and Alphabet. The move underscores growing investor scrutiny over Microsoft’s ability to compete in the high-stakes race to build custom AI hardware, where rivals like Nvidia and Google have taken early leads.

Fund Flags AI Chip Gap as Key Weakness

L1 Capital International Fund reduced its Microsoft holding in the second quarter of 2026, shifting weight toward Alphabet instead. The fund’s investor letter, released this week, pointed to Microsoft’s slower progress in developing its own GPUs, CPUs, and ASICs as a key reason for the adjustment. While Microsoft has partnered with chipmakers like AMD and Nvidia to power its AI infrastructure, the fund’s decision suggests investors are losing patience with its reliance on external suppliers.

The fund returned 2.6% in the June quarter, lagging its benchmark by nearly 10 percentage points, a performance gap that may have accelerated the portfolio shift.

Microsoft’s Stock Struggles Amid High Expectations

Microsoft’s shares have faced pressure all year, down 17.3% year-to-date despite a 3.2% gain over the past month. The company’s market capitalization now stands at $2.93 trillion, still the world’s largest, but its valuation has come under fire as growth in cloud and AI services slows. Investors are now watching whether Microsoft can accelerate its in-house chip development to reduce costs and improve performance, a move that could help it regain its competitive edge.

Why the Move Matters Now

The fund’s exit comes at a critical time for Microsoft, which is racing to catch up in the AI hardware space. While the company has made strides in AI software, including its Copilot tools and cloud integrations, its lack of proprietary chips could limit its ability to control costs and optimize performance. Competitors like Nvidia and Google have already rolled out custom AI chips, giving them greater flexibility in scaling their AI infrastructure.

Microsoft’s reliance on third-party suppliers could also expose it to supply chain risks, particularly if demand for AI chips continues to outstrip supply. The stock’s recent underperformance suggests investors are increasingly skeptical about its ability to execute on its AI ambitions.

What to Watch Next

Investors will be closely monitoring Microsoft’s next earnings report for updates on its AI chip development and cloud growth. Any signs of progress in its in-house hardware efforts could help reassure shareholders, while further delays could weigh on sentiment. The company’s ability to close the gap with rivals like Nvidia and Google will be a key factor in determining whether its stock can regain its upward momentum.

With its market cap still hovering near $3 trillion, even small shifts in execution could have outsized impacts on its valuation. Based on L1 Capital International Fund’s Q2 2026 investor letter.

This article is for informational purposes only and does not constitute financial advice. Please consult a licensed financial adviser before making investment decisions.