L1 Capital exits CDW position as AI pivot reshapes portfolio strategy
The L1 Capital International Fund reported a 2.6 per cent net return for the June 2026 quarter, lagging its benchmark, as it reallocates capital away from artificial intelligence-sensitive stocks toward undervalued quality names.
L1 Capital International Fund has divested its position in CDW Corporation during the second quarter of 2026, marking a strategic shift away from information technology resellers towards businesses deemed less sensitive to artificial intelligence trends. In its investor letter released in July 2026, the fund manager explained that the decision was driven by a desire to fund larger investments in high-quality companies trading below assessed fair value.
The fund noted that most implications of the AI boom for CDW are second-order, with clients potentially reducing expenditure on traditional IT products in favour of AI-centric solutions. Consequently, L1 Capital identified several replacement opportunities for investors with a longer-term horizon, specifically naming American Express, Apollo Group, Danaher, HCA, and ICE as compelling investments that offer better risk-adjusted prospects.
The divestment occurred against a backdrop of significant underperformance for the fund, which returned 2.6 per cent net of fees for the June 2026 quarter. This result fell well short of the benchmark’s 12.5 per cent return, a gap L1 Capital attributed primarily to its exclusion of major artificial intelligence capital expenditure beneficiaries, specifically Taiwan Semiconductor Manufacturing Company and Nvidia, which were top performers in the market.
Despite the fund’s exclusion of these AI leaders from its core holdings, L1 Capital acknowledged the investment merit of Taiwan Semiconductor and Nvidia, noting that both remain among the fund’s top five holdings. The firm stated that while these companies offer strong fundamentals, it believes certain other artificial intelligence stocks present greater upside potential with less downside risk, reflecting a nuanced approach to the current market environment.
Market data for CDW Corporation reflects the shifting sentiment, with shares closing at $133.24 on July 17, 2026, and carrying a market capitalisation of $17.02 billion. The stock has lost 24.67 per cent over the 52 weeks preceding the report, although it posted a one-month return of 7.83 per cent as of mid-July. Hedge fund interest in the stock has also waned, with 46 portfolios holding the position at the end of the first quarter of 2026, down from 58 in the previous quarter.
L1 Capital described the current investment landscape as a resilient but two-speed global economy characterised by high exuberance in certain sectors and pronounced over-pessimism in others. The fund emphasised its continued focus on quality, valuation, and the avoidance of permanent capital loss, positioning the portfolio to deliver attractive returns for patient investors despite the short-term performance headwinds caused by the AI-driven rally.
CDW Corporation is not currently listed among the 40 most popular stocks among hedge funds heading into 2026. The company operates through Commercial, Government, and Education segments, acting as a value-added reseller for leading IT businesses in North America and the United Kingdom. Management has been noted to execute solidly in subdued market conditions, yet the strategic pivot by major funds like L1 Capital highlights the growing divergence between traditional IT infrastructure spending and the rapid adoption of AI-centric solutions.
