Here's What Weighed on Microsoft's (MSFT) Performance

Mott Capital Management, an investment management company, released its Q4 2025 investor letter. A copy of the letter can be downloaded here. Stock markets paused in Q4, with the S&P 500 trading sideways from October to year-end. In 2025, the MCM Thematic Growth Strategy gained 11.98%, underperforming the S&P 500's 17.88%, despite some improvements. The AI boom boosted the S&P 500 in 2025. Concerns for AI and related companies include rising debt and the urgent need for R&D investments in advanced software and data centers. Software stocks sharply declined in 2026 due to falling valuations and rising concerns about AI cannibalization. The letter also discussed the effects of the changing trend on the balance in the Thematic Growth Strategy. The Strategy aims to ease the load on mega-cap tech stocks and expects other sectors to become increasingly sensitive in the coming months. In addition, please check the Strategy’s top five holdings to know its best picks in 2025.

In its fourth-quarter 2025 investor letter, Mott Capital Management highlighted Microsoft Corporation (NASDAQ:MSFT). Microsoft Corporation (NASDAQ:MSFT) is a multinational software company that develops and supports software, services, devices, and solutions. On February 26, 2026, Microsoft Corporation (NASDAQ:MSFT) stock closed at $401.72 per share. One-month return of Microsoft Corporation (NASDAQ:MSFT) was -6.64%, and its shares gained 1.19% over the past 52 weeks. Microsoft Corporation (NASDAQ:MSFT) has a market capitalization of $2.986 trillion.

Mott Capital Management stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its fourth quarter 2025 investor letter:

"Among our holdings,Microsoft Corporation (NASDAQ:MSFT) has the greatest exposure to both the software and spending sides of the AI problem, and valuation is no friend of Microsoft’s these days, either. That makes it a particular risk to continue to own. Additionally, Microsoft does not have a robust in-house, organic AI product. Instead, their AI services are built on the OpenAI backbone and similar platforms. We cut our Microsoft position in half last year (somewhat too early, I might add), and I’m currently being patient to see whether this fear passes or grows."

Microsoft Corporation (NASDAQ:MSFT) is in the second position on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 312 hedge fund portfolios held Microsoft Corporation (NASDAQ:MSFT) at the end of the fourth quarter, compared to 312 in the previous quarter. 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 a list of stocks Jim Carmer discussed. In addition, please check out our hedge fund investor letters Q4 2025 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.