Some investors are firm believers in building highly diversified portfolios. Not Bill Ackman. His Pershing Square Capital Management hedge fund owns stakes in just nine companies. However, this approach has worked out quite well for Ackman over the years: his net worth totals $9.1 billion.
More than 20% of Ackman’s portfolio is invested in a single artificial intelligence (AI) stock. And Wall Street thinks the stock will rise more than 20% over the next twelve months.
Ackman’s best AI stock
What’s Ackman’s favorite AI stock these days? It’s a Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). His Pershing Square hedge fund owns Class A and Class C shares of the tech giant worth about $2.1 billion as of June 30, 2024.
Ackman took a position in Alphabet in the first quarter of 2023. OpenAI had launched ChatGPT just a few months earlier to great success. Alphabet’s subsequent introduction of its generative AI app Bard did not go very well.
When Alphabet’s stock price fell after Bard’s clumsy launch, Ackman began aggressively buying the stock. He later noted in a CNBC interview in 2023 that Alphabet integrated AI into its products and designed its own AI chips. The billionaire investor also thought the company had a competitive advantage with its access to data to use in training AI models.
Sure, Ackman cut Pershing Square’s stake in Alphabet slightly in the second quarter of 2024. However, it is still the hedge fund’s largest position, with the Class A and Class C shares combined. Alphabet has also been a big winner for Ackman.
Analysts’ optimistic view of Alphabet
Wall Street believes that Alphabet can continue its successful path. The average price target for the stock over a twelve-month period is $200.67. That reflects an upside potential of 21.6%. The most pessimistic analyst surveyed by LSEG thinks Alphabet shares will rise over the next twelve months.
Thirteen of the 43 analysts surveyed by LSEG in October consider Alphabet a “strong buy.” Another 256 recommend the stock as ‘buy’. The remaining five analysts consider Alphabet a ‘hold’. No one thinks investors should sell the shares.
BMO CapitalThe recent iteration of an ‘outperform’ rating (the equivalent of a ‘buy’ recommendation) for Alphabet underlines why many on Wall Street like the stock. The company wrote to investors that AI, especially generative AI, should provide a significant growth opportunity for the company’s Google Cloud unit.
In the second quarter of 2024, Google Cloud revenue rose 29% to $10.3 billion. Operating income nearly tripled year over year to $1.17 billion. Alphabet CEO Sundar Pichai said in the Q2 earnings call that his company’s generative AI solutions “have already generated billions in revenue and are used by more than 2 million developers.”
Is Wall Street Right About Alphabet?
Alphabet faces a number of challenges. The company has had several run-ins with regulators over the years. That’s happening again now that a federal judge has ruled that Google has unfairly suppressed competition in the search engine industry. Google is also embroiled in another antitrust lawsuit alleging it has illegally monopolized the digital advertising industry.
Some concerns remain that generative AI could ultimately be a Google killer. Research firm eMarketer predicts that Google’s search advertising market share in the US will fall below 50% for the first time in a decade due to increased competition from TikTok and AI startups like Perplexity.
Despite these issues, I won’t be surprised if Wall Street is right that Alphabet stock could rise another 20% or more over the next twelve months. I wouldn’t write off Alphabet’s long-term prospects either. As Ackman told CNBC last year: “[Alphabet] will be a dominant player in AI in the very, very long term.” He didn’t amass a billion-dollar fortune by making a mistake on his big bets.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions at Alphabet. The Motley Fool holds positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
More than 20% of billionaire Bill Ackman’s portfolio is invested in this artificial intelligence (AI) stock – and Wall Street thinks it will rise more than 20%. originally published by The Motley Fool
