Most wealthy hedge fund managers own the Magnificent Seven and promising AI stocks. Not in Bill Ackman's Pershing Square hedge fund's portfolio. Despite investing $10 billion in the stock market, its newest SEC filings list only seven stocks, and only one is a Magnificent Seven tech firm—Google parent company Alphabet (NASDAQ: GOOGL)!
Pershing Square has about 13.7 million Alphabet shares worth $1.93 billion, according to the latest data. This represents 19% of Pershing's portfolio and is the hedge fund's largest stake. Ackman bought Alphabet Class A and Class C shares in early 2023, unlike some of his earlier investments. Alphabet's business and why Ackman likes it are examined here.
The alphabet in brief Most people know Alphabet for Google, which makes the Google search engine, Gmail, Maps, Chrome, and Android. Google Services includes YouTube and other sections of the business that make money by selling advertising on its platforms.
Most investors don't know much about Google Cloud, the cloud services business. The third-largest cloud services provider, it competes with Amazon (NASDAQ: AMZN) Web Services and Microsoft (NASDAQ: MSFT) Azure. Alphabet's two Google businesses generate most of its revenue.
Excellent profitability and growth prospects First, Alphabet is quite profitable. Its profit margin was 24% over the preceding four quarters and its operational income exceeded $88 billion in 2023. The corporation has $111 billion in cash and short-term investments, and its large cash flow and cash reserves give it financial flexibility.
Second, Alphabet is a rare combination of strong business and huge growth prospects. Many readers wouldn't know the number two search engine without searching it up, and other Google platforms are also dominant.
As AI and other technologies help Google target ads to the proper customers and businesses, its ad revenue should expand dramatically. The company's Google Cloud division may grow rapidly. Google Cloud may benefit from the quadrupling of the worldwide cloud computing market by 2030. Google Cloud revenue surged 26% year over year in the last quarter, and this trend might continue for years.
Looking ahead Trading at 28 times forward earnings forecasts, Alphabet is expensive. Here, you get what you paid for. Alphabet looks undervalued given its profitability, dominance, and growth prospects.