Billionaire investing legend Bill Ackman (Trades, Portfolio) is a man on Wall Street who's worth keeping up with in my opinion. The man behind Pershing Square Holdings (LSE:PSH, Financial) has a magnificent track record, and though there have been some fumbles along the way (think Valeant Pharmaceuticals or the quick loss from Netflix (NFLX, Financial)), Ackman has been able to recover in impressive fashion.
Ackman runs one of the more concentrated hedge funds out there. His portfolio tends to have less than 10 13F holdings at any given time. Though concentration in such a handful of companies could pave the way for considerable volatility, it also means he tends to focus on his best ideas rather than spreading bets across a slew of companies that may be difficult to keep up with. This is an approach that I can get behind. I firmly believe that any self-directed investor should keep up or "stay in the know" with the companies they choose to own shares of. I don't think it's good enough to "buy and forget," given things can change rapidly over time. Given the pace of technological innovation, many companies stand to be disrupted.
Indeed, artificial intelligence (AI) could potentially be the biggest disruptor of the modern era. Even as the American economy steps into a potential recession, AI seems like a technology that could, at the very least, dampen a bit of the downside.
The Federal Reserve has expressed its desire to build a "soft landing" for the economy. Though recent rate hikes could certainly stand to hurt earnings moving forward, I do think that companies using AI have the potential to report higher earnings regardless, as this is such a high-growth area of technology.
That's why, upon reading through Ackman's latest 13F update for the first quarter of 2023, I was thrilled to see that his top buy for the quarter was Alphabet Inc. (GOOG, Financial)(GOOGL, Financial) - both the voting and the non-voting shares.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Betting on Alphabet: A wise but unsurprising move
Undoubtedly, Alphabet is the main AI kingpin with a considerable amount to gain as corporations across the board adopt AI technologies. Given the recent surge in the stock following its I/O event, which showcased a diverse range of AI technologies, it seems like Alphabet's AI growth potential is not just all talk.
According to GuruFocus data, Pershing Square ended the first quarter with 8,069,770 shares of Alphabet's non-voting shares (GOOG, Financial), giving it an 8.21% weight in the equity portfolio, and 2,185,000 voting shares (GOOGL, Financial) representing 2.22% of equity portfolio weight. The bet already seems to be paying off in the short-term, as the price of Alphabet stock has gained approximately 28% compared to the first quarter's average price.
Though it's difficult to know Ackman's exact thoughts on Alphabet, I do think he's not likely looking to book a quick profit based on his history. He may have gone in and out of Netflix in a hurry, taking on a quick loss, but that was due to a material change in the underlying company.
I believe Alphabet is a wonderful business that generates considerable profits from its search, YouTube and cloud businesses. Though macro headwinds and a recession could impact each of these segments negatively, it's hard to ignore the type of AI innovations that we, as consumers, do not see yet. Sure, many investors out there may view Alphabet as a number two or even number three player in AI. That said, I believe Alphabet may actually be the number-one AI company to to its intimidating financial resources; it can just buy its way to the top if it falls behind.
Alphabet's AI revolution
Alphabet's numerous AI-related projects (including the self-driving project Waymo) have been cooking for a pretty long time now. However, unlike OpenAI, which made the "first move" by releasing its generative AI platform to the public, Alphabet has been keeping its cards close. Given AI will probably be subject to enhanced scrutiny from regulators, I think this is a wise move. It knows of the powers and the dangers, and as other tech companies hop aboard the AI train, there's a good chance that Alphabet will be able to feed off of the mistakes of others.
Following Alphabet's annual I/O presentation, investors have grown excited over Alphabet's potential to grow with the power of AI. It certainly seems like the ball has fallen in Alphabet's court. Following its strong product showcase, I think it smashed the ball right back to its competitors with tremendous power; I highly recommend checking out the presentation if you haven't yet.
Final thoughts
Though the growing number of AI players will not all be successfull, personally, I'd be pretty scared to go head-on-head against Alphabet. Though it may not seem like it, Alphabet already has a huge lead in AI thanks to its moonshot projects and its financial resources.
