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 Bill Ackman’s Pershing Square hedge fund portfolio. Despite about $10 billion invested in the stock market, there are only seven different stocks in the latest SEC filings, and only one of them is a Magnificent Seven tech stock: 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 accounts for about 19% of Pershing’s portfolio, making it the hedge fund’s largest investment.
Unlike some of the other investments in Ackman’s portfolio, he hasn’t owned Alphabet stock for long. He added shares of both Class A and Class C shares to the portfolio in early 2023. Here’s a closer look at Alphabet’s business and why Ackman could be such an important factor. fan.
Alphabet in a nutshell
Alphabet is best known for its subsidiary of Google, which most people know from the Google search engine, but also from other tools such as Gmail, Maps, Chrome and Android. These, and a few other parts of the business like YouTube, make up the Google Services segment, which makes its money primarily by selling ads across its various platforms.
The lesser known part of the company (to most investors) is Google Cloud, the cloud services company. It is a competitor of Amazon (NASDAQ: AMZN) Web services and Microsoft‘S (NASDAQ: MSFT) Azure, and is the third largest provider of cloud services, with a smaller share than both.
There are a few other components of Alphabet’s business, but the two Google segments generate virtually all of its revenue.
A great combination of profitability and growth potential
First of all, Alphabet is a hugely profitable company. It generated a 24% net margin over the past four quarters and generated more than $88 billion in operating revenue in 2023 alone. The company also has about $111 billion in cash and short-term investments on its balance sheet, and its combination of cash reserves and massive cash flow gives it excellent financial flexibility.
Second, Alphabet has a rare combination of a dominant business and enormous growth potential. Many people reading this can’t tell what the number two search engine is without looking it up, and some other Google platforms are dominant as well.
Google’s ad revenue should grow significantly over time, especially as Google uses AI and other technologies to more effectively target ads to the right consumers and businesses. The Google Cloud side of the business in particular could have incredible growth potential. The global cloud computing market is expected to roughly quadruple in size by 2030, and Google Cloud could be a major beneficiary of this. In the most recent quarter, Google Cloud revenue grew 26% year over year, and this level of growth could continue for many years to come.
Looking forward
Alphabet is not exactly one cheap shares, trading for 28 times forward earnings estimates. But you get what you pay for in this case. Alphabet has the trifecta – profitability, dominance and growth potential – and when you consider where it stands on all three of these counts, it looks attractively valued.
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Suzanne Frey, a director 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 has positions at Amazon. The Motley Fool holds positions in and recommends Alphabet, Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman has his sights on just one “Magnificent Seven” stock, and it’s not Nvidia. Originally published by The Motley Fool
