Billionaire Bill Ackman hopes to re-create Warren Buffett's success by turning Howard Hughes Holdings into a "modern-day version of Berkshire Hathaway." His vision started to take shape in December when Howard Hughes announced plans to acquire specialty insurance and reinsurance company Vantage Group.
Ackman plans to create an insurance-focused investment company, as Buffett did with Berkshire. Whether he achieves that goal remains to be seen, but his hedge fund has an encouraging track record. It beat the S&P 500 by 40 percentage points over the past decade.
Ackman's hedge fund, Pershing Square Capital Management, has 55% of its assets invested in four artificial intelligence stocks:
- Uber Technologies (UBER 2.16%) is 16% of the portfolio. Wall Street's median target price of $105 per share implies 46% upside from the current share price of $73.
- Amazon (AMZN 1.30%) is 14% of the portfolio. Wall Street's median target price of $285 per share implies 36% upside from the current share price of $209.
- Alphabet is 14% of the portfolio. Wall Street's median target price of $385 per share implies 23% upside from the current share price of $312.
- Meta Platforms is 11% of the portfolio. Wall Street's median target price of $850 per share implies 31% upside from the current share price of $650.
Investors should seriously consider buying all four stocks, but I am going to focus on the two for which Wall Street sees the most upside: Uber and Amazon.
Image source: Getty Images.
Uber Technologies: 16% of Bill Ackman's portfolio
Here's the investment thesis: Uber runs the largest ridesharing and food delivery platform in the world, which makes it an ideal partner for any company that wants to commercialize autonomous driving technology. Uber hopes to deploy 100,000 robotaxis by 2027 (with help from its partners) and the company thinks it will be the largest facilitator of autonomous vehicle (AV) trips by 2029.
In the U.S., Uber works with Alphabet's Waymo to connect riders with robotaxis in Phoenix, Austin, and Atlanta; and it works with Avride to connect riders with AVs in Dallas. In the Middle East, Uber works with WeRide to connect riders with robotaxis in Abu Dhabi, Dubai, and Riyadh. The companies plan to extend their partnership to 12 more cities by 2030.
Uber also works with Nvidia to provide its partners with data and infrastructure (hardware, software, sensors) they need to develop AVs. The company recently introduced a suite of fleet operations services that address needs like telemetry, remote assistance, field support, and insurance. Uber plans to bring robotaxis to about 10 new markets in the near future, including Los Angeles, San Francisco, and London.
Bill Ackman expects Uber's adjusted earnings to grow at 30%-plus annually for several years. That is slightly more optimistic than the Wall Street consensus, which says earnings will increase at 25% annually over the next three years. However, the current valuation of 15 times earnings looks attractive in either scenario.
NASDAQ: AMZN
Key Data Points
Amazon: 14% of Bill Ackman's portfolio
Here's the investment thesis: Amazon has the largest online marketplace in North America and Western Europe, and its retail business is likely to become increasingly profitable as the company leans into artificial intelligence (AI) and robotics. Also, Amazon Web Services (AWS) is the leading provider of cloud infrastructure and platform services, which gives the company a clear path to monetize demand for AI infrastructure.
Amazon has built hundreds of generative AI applications to improve efficiency in its retail operations. Those applications optimize demand forecasting, inventory placement, workforce productivity, and last-mile delivery routes. Amazon is also the largest operator of industrial mobile robots; it has developed an AI model that expedites robot navigation, and it's developing a framework to support natural language commands.
Meanwhile, AWS dominates the cloud infrastructure and platform services space with 41% market share, per Gartner. That alone affords the company a key advantage in monetizing AI. "AWS is where the preponderance of companies' data and workloads reside, and part of why most companies want to run AI on AWS," says CEO Andy Jassy. But AWS has also built custom chips (now a $10 billion business) and it serves as the primary cloud provider for Anthropic.
Some investors are nervous because Amazon is spending a substantial amount of money on AI, but those investments show signs of bearing fruit. In the fourth quarter, operating margin (excluding one-time charges) increased 1.5 percentage points, and AWS revenue increase 24%, the fastest growth since 2022. In addition, the current valuation of 29 times earnings looks attractive for a company whose earnings are expected to increase at 17% annually over the next three years.
