A Once-in-a-lifetime Investment Opportunity: 1 Bill Ackman Artificial Intelligence (AI) Stock to Buy Now Before it Jumps 17%, According to a Wall Street Analyst

One of the most followed investors on Wall Street is Bill Ackman, CEO of Pershing Square Capital Management. While Ackman’s portfolio includes billions of dollars in investment capital, the hedge fund manager only holds seven individual stocks.

This small cohort includes only one technology company: a member of the “Magnificent Seven.” alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Earlier this month, Oppenheimer’s Jason Helfstein raised his price target on Alphabet shares to $185 – about 17% of current trading levels as of the April 22 close.

Let’s examine why Ackman and others on Wall Street have strong beliefs about Alphabet and assess whether now is a good time to snap up some shares.

Advertising is the cash cow, but…

Alphabet’s key revenue and profit drivers are advertising. Considering that the company owns internet search website Google and video-sharing platform YouTube, it’s safe to say that Alphabet has a huge presence online.

The following table illustrates the growth trends in Alphabet’s advertising business over the past few years.

Data source: Alphabet Investor Relations

In recent years, Alphabet has had to fend off a number of competitors encroaching on its advertising business. Metaplatforms owns a variety of social media applications including Facebook, Instagram and WhatsApp. Additionally, TikTok’s rising popularity has also affected Alphabet’s attractiveness to advertisers.

Still, Alphabet remains highly profitable despite slowing growth in its largest division. It’s this dynamic that I think investors are misjudging.

Clearly, the advertising industry is in an existential crisis. However, Alphabet’s robust operating margins are weighing on its bottom line. And the company is making smart investments in new growth drivers that are already paying off.

…artificial intelligence (AI) is the new growth driver

In addition to advertising, Alphabet has a services business and a cloud computing operation. The Services segment includes subscriptions to YouTube TV and NFL Sunday Ticket, purchases from the company’s App Store and sales through devices such as the Google Pixel phone.

Investors should be aware that the services business is extremely profitable, generating operating profits of $95.6 billion in 2023, up 16% year-over-year. In addition, the cloud division is now consistently profitable. Last year, Alphabet’s cloud segment reported an operating profit of $1.7 billion, compared with a loss of $1.9 billion in 2022.

The story goes on

One of the key reasons Alphabet has been able to generate consistent, robust profitability metrics across so many different business areas is AI.

In his 2023 shareholder letter, Ackman explained that Alphabet’s “competitive positioning in AI overshadowed the high quality of its business and strong growth prospects.” This is a nice nod to the fact that some investors see better opportunities than Alphabet when it comes to AI.

However, the trends examined above undermine Ackman’s position when it comes to Alphabet’s business model. As the company continues to integrate AI across its ecosystem, investors should see an exponential increase in the company’s revenue and profit margin profiles across the many different areas in which Alphabet operates.

Is now a good time to invest in Alphabet?

As of this writing, Alphabet’s price-to-earnings (P/E) ratio of 26.9 is the second lowest among the Magnificent Seven – just above it Apple.

Additionally, the company’s price-to-earnings ratio is essentially identical to Alphabet’s 10-year average. Given how much Alphabet has grown over the last decade and how different the company is today compared to ten years ago, I think investors may be largely discounting future growth opportunities.

I think now is a lucrative opportunity to buy Alphabet based on an underappreciated AI narrative. The stock looks dirt cheap compared to its peers, and with so much upside potential, it’s hard to pass up on this stock.

Should you invest $1,000 in Alphabet now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Spatacco has held positions at Alphabet, Apple and Meta Platforms. The Motley Fool has positions in and recommends the Alphabet, Apple and Meta platforms. The Motley Fool has a disclosure policy.

A Unique Investment Opportunity: 1 Bill Ackman Artificial Intelligence (AI) Stock to Buy Now Before It Rises 17%, According to 1 Wall Street Analyst, originally published by The Motley Fool