Billionaire Bill Ackman, who follows an investment philosophy similar to Warren Buffett, has exposure in his Pershing Square Capital Management hedge fund to the artificial intelligence (AI) boom. That might go against his firm's usual focus of buying retail-based businesses.
But since this particular company had its initial public offering in 2004, shares have risen 6,930% (as of July 9). Had you made a $1,000 investment in this top AI stock back then, you'd have about $70,000 today.
Continue reading to learn what business this is and whether or not it should be in your portfolio.
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Already a leader in AI
Through both Class A and Class C shares, Pershing Square had 14% of its assets (as of March 31) in Alphabet (GOOGL 0.79%) (GOOG 0.85%). The hedge fund first purchased the stock in the first quarter of 2023, at a time when the company was losing investor interest as OpenAI's ChatGPT became the talk of the town. There were concerns Alphabet had already lost the AI race. But in typical fashion, being greedy when others are fearful, Ackman became an Alphabet shareholder.
The billionaire highlighted many of the company's favorable qualities as they relate to AI. Pershing Square called out Google's distribution advantage, with the habits consumers have of using Alphabet's products and services. The business also has unrivaled data to train AI models on. And Alphabet has been at the forefront of AI for several years, not just hopping on the bandwagon recently like many others have.
More than two years since Ackman bought the stock, Alphabet remains a power player in the AI world. It has a leading family of models in Gemini. Its crown jewel, Google Search, has an AI Overviews feature that now has 1.5 billion monthly users. And the Google Cloud Platform offers a long list of AI tools to clients, which should register strong demand.
"All 15 of our products with a half a billion users now use Gemini models," CEO Sundar Pichai said on the first-quarter 2025 earnings call.
But perhaps most importantly, Alphabet has the financial resources to stay ahead. Management plans to spend $75 billion on capital expenditures this year. That's a lot of money. However, when the business generates tens of billions of dollars in net income each quarter, having large capital expenditures is easy.
There is certainly a lot of hype surrounding the AI craze. Some forecasters think this technology will completely upend entire industries, drastically cut jobs, and/or provide a substantial boost to economic productivity. It's really anyone's guess what the long-term implications will be. Things will take time to play out.
But here's why Alphabet is in such an enviable position. Even before AI started getting all the attention, Alphabet already had some of the most popular and widely used internet properties on the face of the planet. Management is simply leveraging AI to better serve users, which is a smart strategic decision regardless of how you view this technology's future.
Shares are trading at a discount to the market
Despite Alphabet's powerful position in the tech world, especially when it comes to AI, the market still doesn't fully appreciate the company. Maybe there are still worries about how AI will ultimately impact Google Search, the company's top moneymaker. Additionally, Alphabet remains in the crosshairs of regulatory bodies, adding uncertainty to the mix.
The stock currently trades at a price-to-earnings ratio of 19.8, reflecting some level of pessimism. That's significantly below its trailing-five-year average of 25.5. And it shows that shares are selling at a multiple that's much cheaper than that of the overall S&P 500 index. Investors have the chance to buy an AI leader at a discount today.
