We recently published a list entitled Billionaire Bill Ackman’s 2024 Portfolio: 6 Best Stocks to Buy in 2024. Since Alphabet Inc. (NASDAQ:GOOG) ranks 4th in the list, it deserves a deeper look.
Billionaire Bill Ackman recently made headlines after reports suggested he plans to take his investment firm public as soon as next year. A Wall Street Journal report said the 58-year-old billionaire was selling a stake in Pershing Square to investors as part of a funding round that could value the firm at about $10.5 billion. According to data from WSJ, Pershing Square managed over $16 billion in assets as of the end of April. The publication said Ackman has told investors that he plans to at least quadruple assets under management.
Ackman has run a concentrated portfolio for years. As of the end of the March quarter this year, his portfolio was worth over $10 billion, with just seven stocks. And yet Ackman made $610 million last year, coming in at the seventh position in Bloomberg’s annual list of the best-paid hedge fund founders.
In 2022, Ackman, who writes long and fiery posts on Twitter, announced that he was done with activist investing and was taking a “quieter approach.” In 2023, Pershing Square Holdings generated strong NAV performance of 26.7% versus 26.3% for its principal benchmark, the S&P 500 index.
Ackman talked in detail about the fund’s returns and future strategy during his 2023 letter to investors:
“While our investments in hedging and asymmetric instruments have been enormously profitable, we could have done better. In each of the three black swan events of the last 20 years, we had an early and highly variant view of the likely impact and probability of their occurrence and had identified and invested in instruments that offered profits many times their cost. In retrospect, we should have invested more and achieved even greater profits without risking materially more capital.”
For this article we scanned Ackman’s Q1 portfolio and picked his top six stock holdings. 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).
Alphabet Inc. (NASDAQ:GOOG)
Billionaire Bill Ackman’s Q1’2024 Stake Value: $1,427,771,711
Billionaire Ackman owns a $1.4 billion stake in Alphabet Inc. (NASDAQ:GOOG). In his 2023 letter to investors, Ackman addressed the concerns around Alphabet Inc. (NASDAQ:GOOG) amid the rise of AI language models:
The cumulative impact of AI and machine learning enhancements is perhaps most evident in Google’s core Search franchise. Google Search has evolved from its starting point as a simple results page with “10 blue links” and now provides summary answer snippets for informational and educational queries similar to AI chatbots without any of their latency. For more involved queries, for example, in travel, the company has developed specialized Google Flights and Hotels modules that offer consumers substantial utility and freedom to direct their discovery process. Innovation in Google Search has maintained its leading market position through multiple perceived “disruption” risks over time, including the platform transition from desktop-tomobile and competitive threats from social media and verticalized search. Likewise, we view the company’s integration of generative AI into a wider range of queries, not as a disruptive shift, but as a natural evolution of its Search product which will enhance the user experience and improve conversion for advertisers. We continue to believe Google is one of the most advantaged and scaled players in AI with an unmatched business model. The company’s stock currently trades at approximately 19 times forward earnings, a deep discount to its peers despite its similar rate of projected earnings growth
Read Ackman’s letter here.
Alphabet Inc. (NASDAQ:GOOG) bulls believe the company is just getting started with AI product launches. Alphabet Inc. (NASDAQ:GOOG) is indeed in a strong position to develop an AI ecosystem around its products. For example, demos have shown that Gemini app will help people perform daily personal tasks like note taking, appointments, writing, etc. These features could easily be integrate with other Google apps. Alphabet Inc.’s (NASDAQ:GOOG) app is to urge users to sign up for ‘Google One AI Premium’ plan, which has a $19.99 price tag. Google saw advertising revenue accelerate in Q1 2024, boosted by YouTube in particular growing by almost 21% last quarter. Analysts also believe Alphabet Inc. (NASDAQ:GOOG) is in a strong position to offset any headwinds or lost market share in Google search with YouTube, which saw its ads revenue reach $8.1 billion in the first quarter, a 21% growth. Alphabet Inc.’s (NASDAQ:GOOG) net income in the period came in at $23.66 billion, up 57%, or $1.89 per share.
Lakehouse Global Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its April 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) delivered a strong quarterly result that came in well ahead of analysts’ expectations. Revenue grew 15.4% (16.0% constant currency) to $80.5 billion and operating income grew 46.0% to $25.5 billion. Revenue growth accelerated across Search, YouTube Ads, and Google Cloud, all whilst the company delivered its highest operating margin since 2021 – showing meaningful progress in the company’s efforts to durably re-work their cost structure. On the Generative AI front, management emphasised the company’s infrastructure advantages including 5th generation TPUs(chips developed by Google specifically for AI training and inference), high performance data centre architecture, and AI models that are 100x more efficient versus 18 months ago. Overall, we believe that Alphabet is well placed for the AI opportunity ahead and still has significant latent earnings power. When combined with a relatively undemanding valuation of 21x forward net profit and over $100 billion of cash on the balance sheet, it’s not hard to see why we remain positive on the range of outcomes in the years ahead.”
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks 4th on Insider Monkey’s list of Billionaire Bill Ackman’s 2024 Portfolio: 6 Best Stocks to Buy in 2024. You can visit Billionaire Bill Ackman’s 2024 Portfolio: 6 Best Stocks to Buy in 2024 to see other stocks in the list. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG), 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 Alphabet Inc. (NASDAQ:GOOG) 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.
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