Investors should always keep an eye on billionaire money managers. These are usually some of the best investors in the game and have the track record to back it up. Luckily, a lot of these billionaires and their funds must file reports on what stocks their funds owned at the end of each quarter, effectively telling investors what they bought and sold. Retail investors can gain new investment ideas and use various moves to check their investment theses if they own similar positions.
Investors should always do their due diligence because you never know exactly why a professional money manager is buying or selling a stock. And remember, these institutional investors can make mistakes like anyone else. But recently, investors have been piling into an artificial intelligence (AI) stock that also has become a free-cash-flow machine. Let's take a look.
Joining the ride
The large ride-sharing app Uber Technologies (UBER 2.77%) has been at the center of the technology universe for decades now, as it essentially created a new industry. However, since going public in 2019, the company has not exactly had it easy. It's had to deal with new regulations and more competition, which increased costs and made it difficult for Uber to generate a profit.
NYSE: UBER
Key Data Points
In recent years, the company streamlined its operations while initiatives under CEO Dara Khosrowshahi, who took the reins in 2017, started to pay dividends. And billionaire investors began to take notice:
- Billionaire David Tepper's fund, Appaloosa Management, first purchased Uber in 2021 and has been in and out of the stock on several occasions over the years. After big sales in the fourth quarter of 2023 and the first quarter of 2024, Tepper purchased shares in the second and fourth quarters of 2024.
- Recently, Billionaire Bill Ackman and his fund, Pershing Square Capital Management, announced they had acquired 30.3 million shares since early January. The position, valued at $2.37 billion, could now be the largest in Pershing's portfolio, which held only 11 stocks as of the end of the third quarter.
Ackman praised Khosrowshahi's work since joining the company in 2017 and described it as "a highly profitable and cash-generative growth machine" that "can still be purchased at a massive discount to its intrinsic value." In 2024, Uber generated $9.86 billion in profits and grew free cash flow (FCF) to nearly $6.9 billion from $3.36 billion in 2023. FCF as a percentage of revenue, or the FCF margin, came out to 15.7%, suggesting that management is running a good business and has the flexibility to continue investing in it. Total trips at Uber also grew 19% in 2024.
Every company is trying to jump on the AI train, and Uber appears to have an attractive opportunity in the world of autonomous vehicles (AV). Management values the AV opportunity at $1 trillion in the U.S. alone. However, significant roadblocks remain before commercialization will be reached.
Uber still believes AV companies must demonstrate a lengthier track record of safety, a cost-effective hardware platform that can be rolled out at scale, a strong ground operation, and a high-utilization network that can effectively oversee variable demand and supply. Regulations also need to be better defined.
Uber is positioned to navigate a lot of these challenges and has forged partnerships with several AV companies, such as WayMo and WeRide. The company plans to start testing some of the AVs in its fleet soon. Having been in the ride-sharing game for so long, Uber is an ideal partner for AV companies, given its massive customer base, strong technology, and experience in dealing with safety and operational issues.
Strong financials and a bullish take on AV
Ackman called Uber's attributes "rare," and I think he has a point. The company is generating attractive financials, including strong profitability, growing FCF, and growth in trips and bookings. This not only shows sound and improving financials but also growth prospects.
The stock is essentially a bullish bet on the commercialization of AVs, which are not yet a certainty but are looking increasingly likely as companies continue to push forward. At 24 times forward earnings, the valuation does not seem that demanding for a strong company with much more growth potential ahead.
