If you look at the stock portfolios of most billionaire hedge fund managers, you’ll find plenty of Magnificent Seven stocks, as well as exposure to some of the most promising AI stocks. But that’s not the case in the portfolio of Bill Ackman’s hedge fund Pershing Square. Although about $10 billion has been invested in the stock market, there are only seven different stocks listed in recent SEC filings, and only one of them is a tech stock from the “Magnificent Seven” – Google’s parent company alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG)
According to the latest information, Pershing Square owns more than 13.7 million shares of Alphabet with a total market value of $1.93 billion. This represents about 19% of Pershing’s portfolio, making it the hedge fund’s largest investment.
Unlike some other investments in Ackman’s portfolio, he did not hold Alphabet shares for long, adding Class A and Class C stocks to the portfolio in early 2023. Here’s a closer look at Alphabet’s business and why Ackman could be such a company fan.
The alphabet in a nutshell
Alphabet is best known for its Google subsidiary, which most people know for the Google search engine, as well as other tools like Gmail, Maps, Chrome, and Android. These and a few other divisions such as YouTube make up the Google Services segment, which makes money primarily from selling advertising on its various platforms.
The lesser-known part of the business (to most investors) is Google Cloud, the cloud services business. It is a competitor of Amazon (NASDAQ:AMZN) Web services and Microsoft‘S (NASDAQ:MSFT) Azure is the third largest cloud service provider with a smaller share.
There are several other parts of Alphabet’s business, but the two Google segments generate virtually all of its revenue.
A tremendous combination of profitability and growth potential
First of all, Alphabet is an extremely profitable company. The company posted a net margin of 24% over the past four quarters and generated more than $88 billion in operating profit in 2023 alone. Additionally, the company has approximately $111 billion in cash and short-term investments on its balance sheet, and the combination of cash reserves and massive cash flow gives it excellent financial flexibility.
Second, Alphabet has a rare combination of a dominant business and tremendous growth potential. Many people reading this wouldn’t be able to tell what the second largest search engine is without looking it up, and some of Google’s other platforms are similarly dominant.
Google’s advertising revenue is expected to increase significantly over time, especially as the company uses AI and other technologies to more effectively target advertising to the right consumers and businesses. The company’s Google Cloud side, in particular, could have incredible growth potential. The global cloud computing market is expected to roughly quadruple by 2030, and Google Cloud could be a big beneficiary. Last quarter, Google Cloud revenue grew 26% year-over-year, and this level of growth could continue for many years to come.
looking ahead
Alphabet is not exactly a cheap Stock, trading at 28 times expected earnings estimates. But in this case, you get what you pay for. Alphabet has the triple — profitability, dominance, and growth potential — and considering where it stands on all three counts, it looks attractively valued.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matt Frankel holds positions at Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon and Microsoft. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman has only one ‘Magnificent Seven’ stock in his sights, and it’s not Nvidia was originally published by The Motley Fool