Bill Ackman ranks among the world’s most successful investors. His net worth is around $4 billion. Ackman made his fortune through smart trading through his hedge fund Pershing Square Capital Management.
Like fellow billionaire investor Warren Buffett, Ackman has generally not invested heavily in tech stocks in the past. But there is one notable exception in its Pershing Square portfolio. Here’s Ackman’s favorite artificial intelligence (AI) stock – and why it’s an obvious buy for 2024.
Ackman’s clear AI favorite
We can say with 100% certainty that Ackman’s favorite AI action is Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). As of September 30, 2023, his Pershing Square hedge fund held nearly 4.4 million Class A shares and nearly 9.4 million Class C shares. This stake is currently worth more than $1.9 billion.
The alphabet lags behind only Chipotle Mexican Grill among Ackman’s major titles. This lofty position, however, isn’t the only reason we can know for sure that Alphabet is Ackman’s favorite AI stock. It is also the only AI stocks he owns.
Pershing Square’s portfolio only includes a total of eight stocks. Alphabet makes up two of them with its Class A and Class C shares. There are also a few restaurant chains: Chipotle and International restaurant brands. Pershing Square owns stake in train operator Canadian Pacific Kansas Cityhotel and resort operator Hilton around the worldreal estate developer Howard Hughes Holdingsand home improvement retailer Lowes.
What the billionaire investor likes about Alphabet
Ackman initiated a position in Alphabet in early 2023. CNBC’s Scott Wapner asked him in a September interview how much the purchase had to do with AI. Ackman responded: “It had a lot to do with AI because AI was the reason stocks were cheap.”
This now seems like ancient history, but some investors thought that Microsoft and OpenAI had left Alphabet in the dust in the first two months of 2023. The company embarrassingly mishandled the launch of its ChatGPT rival, Bard. At one point, Alphabet stock fell 17%.
Ackman acknowledged that Alphabet’s sale was exaggerated. He quickly began picking up shares. This turned out to be a wise decision. Alphabet stock soared nearly 60% in 2023.
Why Alphabet is an obvious buy for 2024
The runaway 2023 gain is no reason to buy Alphabet stock now. There is no guarantee that this dynamic will continue. However, I think Alphabet remains an obvious stock to buy for 2024.
My main point is the same one Ackman made in the September CNBC interview. He told Wapner that Alphabet has “many, many competitive advantages” and “will be a dominant player in AI in the very, very long term.” I agree with this assessment.
Alphabet recently demonstrated that it has no intention of playing second fiddle in the AI market. From the company new Gemini Ultra AI model beating the current state-of-the-art AI model (in many cases, OpenAI’s GPT-4) in 30 of 32 widely used benchmarks. It also became the first AI model to outperform human experts on the Massive Multitask Language Understanding (MMLU) test, which includes 57 topics such as ethics, history, law, mathematics, medicine and physics .
I fully expect Gemini to bring a tailwind to Google Cloud in the new year and beyond. I also wouldn’t be surprised if future versions come with even greater advancements in AI.
But AI isn’t the only reason to buy Alphabet stock. The improving outlook for the U.S. economy also bodes well for the company’s advertising business in 2024. Advertising on Google search, YouTube and other platforms generated nearly 78% of the company’s total revenue. ‘Alphabet in the third quarter of 2023.
To be clear, I’m not predicting that Alphabet will generate a return in the new year anywhere near its huge 2023 gain. However, if the overall stock market performs well, I suspect that Alphabet will as well. More importantly, I think Ackman’s favorite AI title will be a big winner in the long run.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights holds positions at Alphabet and Microsoft. The Motley Fool features and recommends Alphabet, Canadian Pacific Kansas City, Chipotle Mexican Grill, Howard Hughes and Microsoft. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
Here’s Billionaire Investor Bill Ackman’s Favorite Artificial Intelligence (AI) Stock — and Why It’s an Obvious Buy for 2024 was originally published by The Motley Fool