Some investors build highly diversified portfolios. But not billionaire Bill Ackman. His Pershing Square Capital Management hedge fund owns positions in only nine stocks.
Two of those stocks share the same underlying business. Pershing Square owns Alphabet (GOOG +0.48%) (GOOGL +0.33%) Class A and Class C shares, which trade under separate tickers. But Ackman slashed his stake in the artificial intelligence (AI) leader in the second quarter of 2024. Should you sell Alphabet stock, too?
NASDAQ: GOOGL
Key Data Points
Ackman's busy Q2
Ackman sold over 368,000 of Pershing Square's Alphabet Class A shares in Q2, reducing the hedge fund's stake by nearly 8.5%. He sold 1.83 million shares of the Class C shares, cutting Pershing Square's position by over 19.5%.
Those weren't his only sales. The billionaire hedge fund manager also greatly reduced his stake in Chipotle Mexican Grill and trimmed his positions in Hilton Worldwide and Canadian Pacific Kansas City Ltd. He added more shares of Restaurant Brands International and initiated new positions in Brookfield Corp. and Nike.
Despite this trading activity in Q2, Google parent Alphabet remains Ackman's largest holding with the combined Class A and Class C shares. The two stocks comprise nearly 20.3% of Pershing Square's total portfolio. The Class A shares trade under the GOOGL ticker and have one vote per share. The Class C shares trade under the symbol GOOG and have no voting rights.
Ackman first bought Alphabet in the first quarter of 2023. The billionaire investor began aggressively buying after the stock fell following Google's bumbling launch of its first generative AI product.
Why did Ackman sell Alphabet stock?
Ackman hasn't stated publicly why the hedge fund decided to reduce its stake in Alphabet. We can guess why, though.
A federal judge ruled in a landmark decision on Aug. 5, 2024, that Google operated an illegal monopoly. Although this decision came after the end of the second quarter, it's possible that Ackman had a bad feeling about the case and chose to sell some of his hedge fund's shares.
Another possibility is that Ackman believes that the tech-fueled boom that began in late 2022 has largely run its course. Some have argued that a sector rotation away from mega-cap tech stocks is underway. If Ackman subscribes to the rotation theory, selling a big chunk of his position in Alphabet could make sense.
Perhaps the most likely reason behind Ackman's sale of Alphabet stock, though, is simply that he wanted to take profits off the table. Between the end of 2023's Q1 and the end of 2024's Q2, the Google parent's share price skyrocketed over 75%. We don't know exactly when Ackman first bought Alphabet and when he sold shares, but his gains were significant.
Should you sell Alphabet, too?
If you're a long-term investor, market rotations shouldn't affect your decision about selling or holding onto Alphabet. Neither should the allure of short-term profits make a difference in what you do.
The federal judge's ruling against Alphabet is another matter. If you think the outcome of this case will seriously hurt the company's business over the long run, selling now could be a wise move. However, I wouldn't jump to this conclusion too quickly.
Alphabet plans to appeal the federal ruling. It's possible the company will prevail. Even if not, we don't know what actions would be taken against Alphabet. More importantly, we don't know how those actions would affect shareholders. For example, should the federal government break up Alphabet, it could actually benefit shareholders.
To be sure, there's a cloud of uncertainty hovering over Alphabet right now. And investors usually hate uncertainty. However, I agree with what Ackman said to CNBC in 2023 about Alphabet a few months after buying the stock: "They will be a dominant player in AI for the very, very long term."
I think the same statement could be made about Alphabet's role in search, video streaming, mobile devices, self-driving car technology, and more. That's the kind of stock I suspect investors will be better off holding instead of selling.
