Bill Ackman's Only AI Stock: A Look at Alphabet's Bargain Potential

Billionaire hedge fund manager Bill Ackman has positioned himself quite uniquely in the investment world. Unlike many of his peers who hold numerous stocks for diversification, Ackman, CEO of Pershing Square Capital Management, maintains a concentrated portfolio with interests in just ten public companies. Among these, he owns only one stock dedicated to artificial intelligence: Alphabet (GOOGL).

In this article, we will explore Ackman's optimistic view of Alphabet as an investment and why this stock appears to be an appealing buy at the moment.

The Case for Alphabet in AI

Ackman's belief in Alphabet's potential in the AI space is bolstered by the firm’s assertion of its "underappreciated leadership" in this domain. This perspective resonates well when considering that Alphabet operates not just the renowned search engine Google and the popular video platform YouTube but also maintains a diverse portfolio that includes cloud computing through the Google Cloud Platform (GCP) and innovative projects like autonomous vehicle development via its subsidiary Waymo.

Impressive Growth Metrics for Alphabet

Alphabet's business performance reflects strong growth. For example, in 2024, the company reported $264.6 billion in revenue from advertising, reflecting an 11% year-over-year rise. Notably, both Google and YouTube saw an increase in advertising sales, suggesting that advertisers are still eager to engage with these platforms despite the growing competition.

Moreover, GCP experienced remarkable growth, with revenue climbing by 30% to reach $43.2 billion. Even more impressive is the substantial increase in GCP's operating profit, which soared to $6.1 billion, marking a more than threefold rise compared to the previous year.

While these revenue increases are promising, equally noteworthy is Alphabet's ability to expand its profit margins while boosting free cash flow and earnings. This financial health paves the way for continued investments in research and development, essential for advancing its AI capabilities and integrating them across its various services.

Alphabet's Stock Valuation as a Buying Opportunity

Nevertheless, Alphabet faces strong competition in the advertising sector from companies like Meta Platforms and the emerging threat of TikTok. In the cloud sector, formidable players such as Amazon and Microsoft continue to hold significant market share. Additionally, the rise of large language models (LLMs) such as ChatGPT adds to the narrative that traditional search methods might become obsolete.

This competitive landscape arguably affects how investors view Alphabet's growth prospects. As reflected in their current valuation, Alphabet's forward price-to-earnings (P/E) ratio is 18.7, which is lower than its five-year average. This discount situation may imply a hesitance among investors concerning the company’s capacity to thrive amidst rising competition.

Despite these challenges, Google and YouTube remain the most visited websites globally, according to analytics from Similarweb and Semrush. This massive user base facilitates Alphabet’s advantage in attracting digital advertising, which is crucial for its revenue strategy.

Additionally, GCP’s impressive growth rate suggests a bright future, particularly as more businesses adopt AI solutions. This indicates that cloud services could eventually surpass digital advertising in significance for Alphabet. Such a shift positions the company well for ongoing competition against other cloud giants.

In conclusion, while many investors may fear that Alphabet is losing its edge, the solid financial indicators paint a different picture. With its current stock price presenting a bargain opportunity, growth investors might want to consider adding shares of Alphabet as they prepare for a long-term investment strategy.

Ackman, Alphabet, AI