Bill Ackman ranks as one of the most successful investors in the world. His net worth stands at roughly $4 billion. Ackman made this fortune with smart trades through his Pershing Square Capital Management hedge fund.
Like fellow billionaire investor Warren Buffett, Ackman usually hasn't invested heavily in tech stocks in the past. But there's one notable exception in his Pershing Square portfolio. Here's Ackman's favorite artificial intelligence (AI) stock -- and why it's a no-brainer buy for 2024.
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Ackman's clear AI favorite
We can say with 100% certainty that Ackman's favorite AI stock is Alphabet (GOOG 0.56%) (GOOGL 0.42%). As of Sept. 30, 2023, his Pershing Square hedge fund owned nearly 4.4 million Class A shares and almost 9.4 million Class C shares. This stake is currently worth more than $1.9 billion.
Alphabet trails behind only Chipotle Mexican Grill among Ackman's top holdings. This lofty position isn't the only reason why we can know for sure that Alphabet is Ackman's favorite AI stock, though. It's also the only AI stock that he owns.
Pershing Square's portfolio includes a total of just eight stocks. Alphabet makes up two of them with its Class A and Class C shares. There are also a couple of restaurant chains -- Chipotle and Restaurant Brands International. Pershing Square owns a stake in rail operator Canadian Pacific Kansas City, hotel and resort operator Hilton Worldwide, real estate developer Howard Hughes Holdings, and home improvement retailer Lowe's.
What the billionaire investor likes about Alphabet
Ackman initiated a position in Alphabet in early 2023. CNBC's Scott Wapner asked him in an interview in September how much the purchase had to do with AI. Ackman answered, "It had a lot to do with AI because AI was the reason the stock was cheap."
It seems like ancient history now, but some investors believed that Microsoft and OpenAI had left Alphabet in the dust during the first couple of months of 2023. The company embarrassingly mishandled the launch of its ChatGPT rival, Bard. At one point, Alphabet stock sank 17%.
Ackman recognized that Alphabet's sell-off was overdone. He quickly began to scoop up shares. That turned out to be a smart move. Alphabet stock skyrocketed close to 60% in 2023.
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Why Alphabet is a no-brainer buy for 2024
The sizzling gain in 2023 isn't a reason to buy Alphabet stock now. There's no guarantee that the momentum will continue. However, I think Alphabet is still a no-brainer stock to buy for 2024.
My top argument is the same one that Ackman made in the September CNBC interview. He told Wapner that Alphabet has "many, many competitive advantages" and "will be a dominant player in AI for the very, very long term." I agree with that assessment.
Alphabet recently demonstrated that it doesn't intend to play second fiddle in the AI market. The company's new Gemini Ultra AI model beat the current state-of-the-art AI model (in many cases, OpenAI's GPT-4) in 30 of 32 widely used benchmarks. It also became the first AI model to outperform human experts on the MMLU (massive multitask language understanding) test, which includes 57 topics such as ethics, history, law, math, medicine, and physics.
I fully expect that Gemini will provide a nice tailwind for Google Cloud in the new year and beyond. I also won't be surprised if future versions come with even greater AI breakthroughs.
But AI isn't the only reason to buy Alphabet stock. The improving outlook for the U.S. economy also bodes well for the company's advertising business in 2024. Advertising on Google Search, YouTube, and other platforms generated nearly 78% of Alphabet's total revenue in the third quarter of 2023.
To be clear, I'm not predicting that Alphabet will deliver a return in the new year that's anywhere close to its huge gain in 2023. However, if the overall stock market performs well, I suspect that Alphabet will, too. More importantly, I think that Ackman's favorite AI stock will be a big winner over the long term.
