We recently compiled a list of the Bill Ackman Stock Portfolio: 8 Top Stock Picks. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other the Bill Ackman’s Stock Portfolio.

Bill Ackman is an investor whose portfolio is well-positioned to benefit from the economic environment’s improvement as interest rates trend down. In addition to being vocal about investment opportunities especially when there is a high risk reward, Ackman also does not shy away from giving his opinion on what he thinks is wrong. In September he took on the Brazilian Supreme Court justice on its decision to block Elon Musk’s social networking app. The billionaire investor reiterated that the decision could end up driving away investors and harming the country.

The “illegal shut down of X and account freeze at Starlink put Brazil on a rapid path to becoming an uninvestable market,” Ackman said in a post on X. “China committed similar acts leading to capital flight and a collapse in valuations. The same will happen to Brazil unless they quickly retreat from these illegal acts.”

It is not the first time that the legendary investor has echoed his opinion having already withheld a huge donation from Harvard University because of purported anti-Semitism. He also played a role in bringing down President Claudine Gay.

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Can Geopolitical Tensions and Inflation Impact Ackman’s Portfolio?

Ackman stands out among the top echelons because he focuses on high-quality large-cap companies with limited downside potential. Over the past five years, the billionaire investor has generated a 31% annualized return, affirming why he is one of the most revered investors on Wall Street.

The fundamental value investor has made a name for himself in investing and pushing for strategic changes in companies in a bid to increase shareholder value. Ackman’s investment strategy focuses on holding a limited number of companies, mostly eight to 12, for the long term in his portfolio.

As one of the sharpest investors on Wall Street,  Bill Ackman’s stock portfolio is well-positioned to benefit from an improving investment environment. The US Federal Reserve cutting interest rate by 50 basis points is increasingly emerging as a key catalyst poised to push the overall market higher.

While the S&P 500 was already up by more than 15% before the interest rate cut, it is currently flirting with record highs with more than 20% gains. The rally came on growing optimism that the lower interest rate environment would support the US economy, which was struggling, as depicted by weakness in the labor market and slow manufacturing.

While an accommodative interest rate environment is a must-welcome factor that could drive Ackman’s portfolio higher, a combination of regional conflict in the Middle East and rising inflation could curtail the gains. According to Stephen Roach, a senior fellow at Yale Law School’s Paul Tsai China Center, a completely blown conflict in the Middle East could trigger inflationary risks even as central banks start easing monetary policy.

Roach expects the markets to whipsaw back and forth amid heightened volatility in response to the geopolitical tensions. Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, has already warned that Israel’s response to Iran’s attack could throw the Fed’s 50 basis point rate cut off track.

Bill Ackman’s portfolio could feel the effects of escalating geopolitical tensions in the Middle East on the investment environment turning jittery.  The portfolio suffered one of its biggest losses in July as it erased most of its 2024 gains. The portfolio lost 4.7% in the month, fueled by losses in one of Ackman’s investments in a large record label.

The string of negative losses persisted, with Ackman struggling to generate interest in his plan for one of his investment firms in the market. After failing to garner enough investor interest, the planned launch of Pershing Square USA (PSUS) IPO, which Bill Ackman once claimed could raise $25 billion, was canceled.

Ackman confirmed the withdrawal, reiterating that they will revisit the IPO once they are ready to launch a revised transaction. The pullback comes on investors raising concerns about the proposed fund’s structure and where he knew cash would be invested given that the market is at an all-time high with valuations getting out of hand. With that, let’s dig deeper into Bill Ackman’s stock portfolio.

Our Methodology

We sifted through Pershing Square’s Q2 2024 13F filings and picked the hedge fund’s top 8 stock picks. The stocks are ranked in ascending order of Pershing Square’s stake in them, as of June 30. We have also mentioned the hedge fund sentiment around each stock.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Alphabet Inc. (NASDAQ:GOOGL)

Number of Hedge Fund Holders as of Q2: 216

Pershing Square’s Equity Stake: $1.38 Billion

Alphabet Inc. (NASDAQ:GOOGL) has to be Ackman’s biggest holding in the technology sector while offering exposure to the artificial intelligence frenzy. While many investors were worried about how AI would affect Alphabet’s core Google business, Ackman’s firm purchased more shares. His fund holds 7.55 million shares of the company, as of Q2 2024.

Alphabet Inc. (NASDAQ:GOOGL)’s core business is well-positioned to benefit from AI. Google Cloud’s revenue growth is already accelerating, reaching a $10 billion quarterly revenue run rate thanks to artificial intelligence.

Several well-known AI companies use Google Cloud to train and implement their AI models and services. Conversely, chatbots such as OpenAI’s ChatGPT don’t seem to have impacted core Search ad revenue thus far. In the latest quarter, Alphabet Inc. (NASDAQ:GOOGL)’s primary product saw a 14% increase in revenue. Nevertheless, it observed some weakness in the growth of YouTube ad revenue.

In the age of artificial intelligence (AI), Ackman has stated that he believes Alphabet has a competitive advantage due to the data it generates from search and related products. The gamble has paid off thus far, as Alphabet Inc. (NASDAQ:GOOGL) has outperformed the S&P 500. The company has also dismissed worries that chatbots like ChatGPT will eventually disrupt search.

Google is reducing expenses across the board even as it keeps making significant investments in its data centers to increase its AI inference and training capacity. Because of this, the operating margin is rising swiftly and contributing to the bottom line’s growth. For the next five years, analysts currently project earnings per share growth of more than 20% annually from Alphabet.

In addition to the robust growth, Alphabet remains one of Ackman’s top holdings, yielding 0.48% on dividends while trading at a discount with a price-to-earnings multiple of 19. There were 216 hedge funds long Alphabet Inc. (NASDAQ:GOOGL) in the second quarter, with a total stake value of $35.31 billion.

Baron Fifth Avenue Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:

“We also added to Alphabet Inc. (NASDAQ:GOOG). The company reported solid financial results with first quarter revenue growth of 15% year-over-year, driven by 14% growth in search, 21% growth in YouTube, and 28% growth in cloud (which accelerated from 26% growth in the fourth quarter). The company has also increased its cost discipline efforts, which drove operating margins to 31.6% (compared to 25% in the first quarter of 2023). With regards to GenAI, while we are cognizant of the potential risks to the dominance of search, we believe that on the range of outcomes, Alphabet remains well positioned through its massive user distribution (9 products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI talent, a solid cloud computing division in Google Cloud, and deep pockets for investing in AI. During the quarter, Alphabet also held its annual I/O conference, where it provided an update on its efforts in AI including: Gemini is now used by 1.5 million developers; model quality is expanding rapidly (e.g., context window is now 2 million tokens of length); the new genomics model, Alphafold 3 can predict structures of molecules and potentially accelerate drug discovery; new TPU6 AI chips has shown a 4.7 times improvement in compute performance compared to the prior generation; and Gemini for workspace is showing early data on a 30% increase in user productivity. Alphabet also has real value in assets such as Waymo, which are not factored into valuation today (and are potentially included at a negative valuation as they currently generate losses, hurting EPS). We continue to believe that the current valuation of Alphabet presents an attractive risk/reward for long-term owners of the business and have therefore increased our position.”

Overall GOOGL ranks 4th on our list of Bill Ackman Stock Portfolio: 8 Top Stock Picks. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOGL, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.