L1 Capital flags Intercontinental Exchange valuation amid AI rally gap
The L1 Capital International Fund reported a 2.6 per cent net return for the June quarter, missing the 12.5 per cent benchmark, while identifying Intercontinental Exchange as trading at a compelling forward price-to-earnings ratio of 17x.
L1 Capital International Fund reported a net return of 2.6 per cent for the second quarter of 2026, significantly underperforming its benchmark of 12.5 per cent. In its investor letter, the fund attributed the performance gap to a market environment that heavily favoured artificial intelligence capital expenditure beneficiaries, specifically Taiwan Semiconductor Manufacturing Company and Nvidia, which the fund did not hold.
The fund described the current investment landscape as a two-speed but resilient global economy marked by high exuberance in certain sectors and pronounced over-pessimism in others. L1 Capital stated that its underperformance was driven more by the investments it chose not to hold rather than poor stock selection within its existing portfolio.
Intercontinental Exchange, a US-based financial services company providing technology and market infrastructure, was identified as a high-quality business trading at a forward price-to-earnings ratio of approximately 17x. L1 Capital noted this valuation level had not been seen since the Global Financial Crisis, although the stock detracted from the fund’s overall performance during the quarter.
On July 17, 2026, Intercontinental Exchange shares closed at $139.65, reflecting a market capitalisation of $78.97 billion. The stock had lost 22.76 per cent over the past 52 weeks but posted a one-month return of 6.33 per cent. The fund dismissed market concerns regarding the impact of artificial intelligence on the company’s data usage as peripheral, arguing it was unlikely to materially impact the business.
Regulatory uncertainty surrounding the Commodity Futures Trading Commission was also addressed. The letter highlighted that the regulator currently operates with only one commissioner, Michael Selig, following a series of resignations. Selig, who was appointed by President Trump and has a background in law working for crypto exchanges, leads the body that regulates many of Intercontinental Exchange’s markets.
Despite the regulatory landscape, Intercontinental Exchange recorded record net revenues of $3 billion in the first quarter of 2026, representing a 20 per cent year-on-year increase. The number of hedge fund portfolios holding the stock increased to 86 at the end of the first quarter, up from 83 in the previous quarter.
L1 Capital maintained its focus on quality, valuation, and the avoidance of permanent capital loss. The firm believes the portfolio is positioned to deliver attractive risk-adjusted returns for patient investors, even as it acknowledges that certain AI stocks may offer greater upside potential with less downside risk in the current environment.
