Billionaire activist investor and hedge fund manager Bill Ackman (Trades, Portfolio) had another helping to Class A shares of Alphabet Inc. (GOOGL, Financial) in the second quarter, boosting his stake by a reported $1.5 billion. Indeed, the guru has been a major buyer of the big tech dip. As a concentrated investor with far fewer holdings than your average hedge fund, he has been quite an aggressive buyer.
Undoubtedly, Ackman's move into Alphabet may have been a surprise to some given his firm's portfolio — Pershing Square Holdings — does not tend to be a big buyer of technology stocks. Apart from the short-lived, money-losing move into and out of Netflix Inc. (NFLX), the investor has not been too active when it comes to the tech scene.
Ackman's investment strategy
Indeed, whenever Ackman speaks (or places a big bet on a stock), people pay attention. He may have had a few blunders (think back to the Valeant Pharmaceutical days) in his career, but he has more than made up for the bad moves with a handful of bets that have gone right.
When it comes to Alphabet, I do think Ackman will be proven right as the search giant continues funneling considerable sums into its artificial intelligence endeavors. Though the company's search business could face some disruption as generative AI technologies take off, I do think the stock's relative discount to its FAANG peers is a tad unwarranted. By no means is Alphabet a sitting duck as most enterprises look to AI as an engine that could accelerate growth.
Ackman's bet mirrors Buffett's past bets on Apple
In my opinion, Ackman is more of a Warren Buffett (Trades, Portfolio)-style value investor when he is not too busy betting against companies.
That said, even the 93-year-old Buffett has embraced technology with open arms, with his wonderful bet on shares of Apple Inc. (AAPL, Financial), which have done incredibly well in the Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial) portfolio over the years.
Adapting to the digital age
In the digital age, one must adapt and embrace tech stocks or run the risk of being left behind as the next industrial revolution rocks the world economy. Like Buffett, Ackman has found opportunity in the FAANG cohort. At this juncture, Alphabet looks relatively cheap and well-positioned to grow as new technologies take off and disrupt new markets.
At the 2019 Berkshire Hathaway shareholders meeting, Buffett and Charlie Munger (Trades, Portfolio) told shareholders that they should have bought Alphabet, acknowledging it was likely a mistake not doing so.
Though the two legends may kick themselves for not having bet on Alphabet's stock back in the day, I do not think it is too late to be a buyer of the tech behemoth as it continues to invest heavily in AI. Just ask Ackman.
Ready to thrive in the AI age
While its revenue breakdown could change by quite a bit over the course of the next decade, I would be willing to bet that AI will be a massive net positive for the company. At the end of the day, Alphabet has a massive pile of search data at its fingertips. Moreover, it is in the business of AI innovation, with the likes of Google DeepMind and other impressive large language models under development for many years.
Last week's Cloud Next event was full of new AI innovations. Indeed, the event seemed to one-up its AI-packed I/O event earlier this year.
Conclusion
Even with the haze of uncertainty facing Google and the rest of big tech, I would be willing to bet that Alphabet will be a heck of a lot stronger 10 years from now, well after the wave of AI disruption hits the world. However long Ackman chooses to stay in the stock, I think he will look very smart for having bought the dip.
