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 Alphabet Inc. (NASDAQ:GOOG) as a leading performance contributor. Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, offers various platforms and services, including online search and advertising, cloud solutions, and artificial intelligence. On July 16, 2026, Alphabet Inc. (NASDAQ:GOOG) closed at $353.81 per share, reflecting a market capitalization of $4.31 trillion. Alphabet Inc. (NASDAQ:GOOG) posted a one-month return of -3.71%, while its shares gained 90.28% over the past 52 weeks.
Wedgewood Partners stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2026 investor update:
“Alphabet Inc. (NASDAQ:GOOG) was a top contributor to performance during the quarter. Google Search and Cloud continue to accelerate, with Search posting 19% revenue growth and Cloud posting 63% revenue growth, helping drive 30% growth in operating income. That torrid growth in operating income compares to, we estimate, more than 40% growth in Alphabet’s total gross assets. While that means returns on capital were slightly diluted, they remain above 30%. We think Alphabet is an exceedingly rare, if not entirely unique, business, growing a nearly $450 billion gross asset base by 40% while maintaining a 30% return on that massive asset base. These are astonishing compounding figures. Further, we have excluded from operating income large, unrealized gains from the Company’s investment portfolio, which totaled more than $35 billion in the most recent quarter (mostly due to SpaceX) and nearly $50 billion over the past six quarters. The Company also has a 14% stake in the private company Anthropic. That stake could be worth more than $100 billion based on valuations reported from recent capital raises. We highlight these investments because these investees are drivers of recent inflation in component costs, especially DRAM memory. Although the market typically ignores the “one-time” investment gains that Alphabet has made, we think these extremely large gains have served as a de facto hedge for the rapid, incremental capex spending requirements. In other words, we estimate the $150 billion in investment gains on SpaceX and Anthropic (if realized) could effectively cover incremental DRAM-related capex costs for several years. These one-time gains are not included in our core calculations for returns – but suffice it to say, Alphabet has plenty of excess profitability to continue investing both responsibly and aggressively…” (Click here to read the full text)
