We recently published a list of Bill Ackman’s Stock Portfolio: Top 9 Stocks to Buy. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against other stocks to buy in Bill Ackman’s portfolio.
William Albert Ackman, more commonly known as Bill Ackman, is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. Famous for his concentrated portfolio, with stakes in only 8 to 12 stocks at a time, Bill Ackman’s recent portfolio modification has revealed that 47% of his hedge fund is invested in just three stocks.
Analysis of his portfolio reveals that Bill Ackman invests in stocks that are mispriced relative to the long-term value of the company. Historically, this philosophy has served him well since Pershing Square’s total value was just under $13 billion by the end of the third quarter of 2024 with only 9 stocks.
A longtime supporter of the Trump administration, Ackman has been vocal about the benefits that the newly elected president will bring to the investment front. In addition to the prospects of deregulation and corporate tax cuts that could allow for stock prices to rise and have made many investors bullish on the market, Bill Ackman has more vested interests in the Trump office. Pershing has a roughly 10% stake in the common shares of the government-sponsored entities. He took to X to discuss his hypothesis about how Donald Trump could help these giants exit government conservatorship and be recapitalized, leading to substantial shareholder gains for Pershing Square.
In early 2024, Ackman launched a U.S. closed-ended fund called Pershing Square USA, Ltd., and talked about it during his 2024 letter to investors:
“The launch of PSUS is one of a number of strategic initiatives we plan to undertake which we believe will increase the long term sustainability of Pershing Square Capital Management, L.P., (“PSCM” or the “Investment Manager”), and will benefit PSH by reducing the performance fees that it pays. To this end, in June, we sold a 10% interest in PSCM, the proceeds of which will be used to anchor new fund launches including PSUS.”
However, Pershing Square officially canceled its IPO just one day after filing with the SEC due to a $2 billion listing as opposed to its original target valuation of $25 billion. Finally, while announcing the IPO cancellation on X, Ackman wrote “We will report back once we are ready to launch a revised transaction,” hinting at the possible launch of PSUS without listing shares on a stock exchange.
Our Methodology
The stocks discussed below were picked from Pershing Square’s Q3 2024 13F filings. They are compiled in the ascending order of Pershing Square’s stake in them as of September 30, 2024. In order to assist readers with more perspective, we have included the hedge fund sentiment regarding each stock using data from over 900 hedge funds tracked by Insider Monkey in the third quarter of 2024.
Why are we interested in 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).
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders as of Q3: 202
Pershing Square’s Equity Stake: $1.26 Billion
Alphabet Inc. (NASDAQ:GOOGL) is the only stock that Ackman holds in the technology sector, and hence the only holding that allows Pershing Square to participate in the race for artificial intelligence. Although Ackman has maintained its stake in the company across the second and third quarters of 2024, its equity stake has fallen from $1.38 billion at the end of Q2 2024 to $1.26 billion by the end of Q3 the same year.
Popular for its leading search engine Google, Alphabet Inc. (NASDAQ:GOOGL) is also involved in developing artificial intelligence, mobile operating systems, and cloud computing services to make money through the sale of advertising and various service fees. Although revenue from Google Cloud is growing rapidly, the company still generates most of its revenue from Google Adsense, the branch that deals with advertising.
Alphabet Inc. (NASDAQ:GOOGL)’s revenue for Q3 2024 was $88.27 billion, up 11% from the same period the previous year, and compared to the analysts’ expectations of $86.39 billion. Its net income for the quarter was $26.3 billion, reflecting a year-over-year increase of 33.6%. Operating income was $28.5 billion, compared with $21.3 billion for the same quarter in 2023. It beat the consensus estimate of $1.83 by $0.29, reporting earnings per share for the quarter to be $2.12 against $1.55 EPS for the same period in 2023.
Google has partnered with HP to integrate its Project Starline with popular video conferencing platforms, Google Meet and Zoom, and is set to launch the 3D video call technology in 2025. After refining the technology, initially designed for a booth setup, into a more accessible screen-based format, Google is now preparing to introduce Project Starline to the broader public to improve the video conferencing experience. In addition, Google Cloud, a subsidiary of Alphabet, has revealed that streaming powerhouses Spotify and Paramount Global are now using its newly developed Axion chip for enhanced performance and efficiency, further strengthening the position of Alphabet Inc. (NASDAQ:GOOG) as an industry leader in artificial intelligent.
Oakmark Equity and Income Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q4 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was the top contributor during the quarter. Despite ongoing litigation with the Department of Justice in its antitrust case, the U.S.-headquartered interactive media and services company’s stock price rose after posting solid third-quarter earnings. In the Search division, the company generated low-teens year-over-year revenue growth and management highlighted that they’re seeing strong user engagement with their new AI Overviews feature. The biggest upside surprise came from the Cloud division, where revenue growth accelerated to 35% and margins reached a record of 17%. This performance was driven by client demand for AI Infrastructure and Generative AI Solutions as well as core Google Cloud Platform (GCP) products. We continue to believe Alphabet is a collection of great businesses that can unlock further value over the long term through its world-class AI capabilities.”
Overall, GOOGL ranks 8th on our list of stocks to buy in Bill Ackman’s portfolio. While we acknowledge the potential for GOOGL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
