Intuit declined over 30% during the quarter, extending a difficult period for the financial software leader, as the structural repricing of traditional software-as-a-service (SaaS) business models continued to weigh heavily on investor sentiment. Despite strong reported quarterly results that included an increased growth outlook and a sizable capital return program to shareholders, the stock fell, as the market demanded more evidence to quell concerns related to pricing erosion and potential business model disruption from AI. Intuit's decades of compliance expertise, embedded role in regulated financial workflows and high switching costs remain meaningful competitive advantages, and we continue to monitor the company's internal AI platform development as a potential source of business model reinvention that the market is not yet pricing.

Intuit's Q3 2026 quarterly results were moderately below expectations, leading to a nearly 40% drop in share price during the June 2026 quarter. While QuickBooks continues to perform solidly, growth rates are expected to slow. TurboTax, which has invested in AI, is experiencing mixed results; its hybrid offering, TurboTax Live, is growing rapidly, but the DIY product has lost market share among price-sensitive filers. This has resulted in a downgrade of expected growth for TurboTax from 8% to 7% for FY2026. Intuit is now trading below fair value, and the key question is whether the market share loss is temporary or indicative of a structural change due to AI. Given the uncertainty, the position has been reduced to balance risk and potential return.

Intuit (INTU) was an underperformer despite reporting solid operating results. Investor focus has been on weaker-than-expected tax segment results, especially since expectations were high following positive management comments during the quarter. Software stocks, in general, underperformed in the second quarter as AI is increasingly viewed as an existential threat to the sector. We think that the sell-off is an overreaction, given that any increase in the magnitude and complexity of code creation could make incumbent software providers more critical, as code quality, interoperability, compliance, and security are essential infrastructure elements.

Intuit (INTU) underperformed in the second quarter despite reporting solid operating results. The primary concern was weaker-than-expected tax segment results, which fell short of high investor expectations following positive management comments. The broader software sector also faced challenges, as AI is increasingly perceived as a threat. However, we believe the sell-off is an overreaction, as the growing complexity of code creation could enhance the importance of established software providers, making them critical for code quality, interoperability, compliance, and security.

The software sector, including Intuit, has faced significant valuation declines, with some companies losing more than half their value. However, we believe that incumbents like Intuit, which embrace AI technology, can not only defend their market position but also enhance profitability in the long run. Just as retailers adapted to the internet, companies that leverage AI effectively will likely emerge stronger. The potential for AI to reduce costs and complexity in software development presents both challenges and opportunities for established players.

Intuit was the largest detractor with the share price down significantly after its quarterly report disappointed investors. This compounded fears that parts of its business could be disrupted by AI. We liquidated our stakes in Intuit due to overlapping thematic headwinds. Both companies face intensifying market scrutiny regarding the potential for generative AI to disrupt their core business models. Because these structural debates will take considerable time to resolve, the near-term visibility on earnings durability has diminished.

We have owned more of the latter types of companies, and that has not helped relative performance this year. The market is currently using (very) long-term thinking and expectations to justify short-term trades. Software leaders such as Intuit are now trading on extraordinarily cheap valuations despite continued business momentum and genuine AI optionality within their own operations. We believe that these companies will benefit from the transformational technology of AI, which is in its early stages.

We initiated new positions in Intuit, which is the dominant provider of accounting software in the US. We have followed Intuit for many years and believe it has been caught up (we believe unfairly) in the debate over whether AI will disrupt its business model. We own a portfolio of extremely high-quality businesses that we believe are deeply undervalued, and we believe the portfolio is well-positioned for the coming years.

We initiated a small position in Intuit, a leading U.S. financial software and data-driven platform serving consumers, small businesses, and accounting/tax professionals. It is best known for its TurboTax business. Intuit’s share price declined from over $800 in 2025 to the low $400’s. We started our position near the end of the quarter at approximately $425 per share. AI poses a threat to some software businesses, but we believe Intuit has a loyal customer base and will adapt to technological change. The company has an 'ecosystem' advantage: workflows embedded in customers’ financial lives (tax, accounting, payroll, payments, credit/financial offers) are efficient and discourage switching to another system. At 17x forward earnings, we believe it is very attractively priced for a company that has grown its earnings at a double-digit rate.

Intuit's quarterly results were solid, with strong execution across TurboTax and QuickBooks. Despite AI disruption fears and uncertainty regarding credit card regulatory changes, the company's fundamentals are improving. Intuit's resilience is bolstered by the legally required nature of tax filing and the essential role of QuickBooks for SMBs. Their early investments in data and GenAI, along with hybrid human expert-assisted offerings, position them to capture market share in tax preparation and small-business accounting. Intuit's proprietary data and strong retention rates support its ability to embed AI across its software suite, enhancing core products and providing ample monetization opportunities, which should lead to double-digit earnings and revenue growth in the future.