Hedge Fund Leader Bill Ackman Bullish on Alphabet's Future

Published February 27, 2024

The well-known investor and hedge fund manager, Bill Ackman, who founded Pershing Square Capital Management, has identified Alphabet Inc., the parent company of Google, as an attractive investment opportunity. This recognition is significant given Ackman's influence and expertise in the financial sector.

Insightful Discussion on Alphabet

Ackman recently shared his upbeat assessment of Alphabet during an interview with notable computer scientist and YouTuber, Lex Fridman. He brought to light Alphabet's formidable status in the marketplace, particularly emphasizing their advancements in artificial intelligence (AI).

"We've held Alphabet in high regard for around 15 years. However, it was seldom priced accessibly enough for us to consider investing. Expectations were racing high, and we believe pricing plays a crucial role," Ackman explained, implicitly addressing the importance of market timing when making investment decisions.

The AI Scare and Market Reactions

Ackman went on to describe a period he referred to as the 'AI scare,' when Microsoft Corporation made headlines with their involvement in OpenAI and the introduction of ChatGPT. This innovation sparked a wave of excitement about the product's capabilities, leading some to speculate that Google had fallen behind in the AI race.

This speculation was aggravated by Google's 'Bard' demonstration, which didn't go as smoothly as planned, causing a drop in Alphabet's stock price. Ackman noted, "The stock price dipped, and Google's valuation hit about 15 times earnings. For a company of Google's caliber, that's an exceptionally low valuation."

Alphabet's Undervalued Potential

Despite the transient AI scare, Ackman pointed out that Alphabet's core businesses, such as its search engine and YouTube platforms, have remained exceptionally profitable and show strong resilience against disruption. He emphasized that Alphabet's long-term investments and developments in AI could be underappreciated, suggesting that the market reaction to the Bard incident was an overreaction.

He also mentioned Alphabet's dominance in advertising. As the world continues to move from offline to online advertising, Ackman foresees Alphabet maintaining, if not strengthening, its lead due to the superior returns on investment that online ads offer to advertisers.

The 'Magnificent 7' Advantage

Alphabet is part of what is commonly referred to as the 'Magnificent 7' group of stocks. This group represents some of the most influential and robust performers in the U.S. stock market, alongside Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.

Investment Criteria for Long-Term Value

Ackman revealed his strategy for hunting investments that are likely to offer long-term value. He places a high premium on stability and the ability to predict a company's profitability in the future. "We seek out non-disruptive businesses, ones where you can envision that even if the market were to close for ten years, the company would emerge more valuable and more profitable," he says. This criterion is essential for investors who favor long-term investments over short-term gains.

Final Thoughts

As an investor, Ackman's confidence in Alphabet may influence others in the market to take a second look at the company's stock, particularly in light of recent market reactions that may have resulted in an undervaluation of the tech giant. With a focus on sustainable, profitable growth and a strong position within the 'Magnificent 7', Alphabet represents a compelling case for investment consideration according to Ackman's analysis.

Ackman, Alphabet, Investment