Over 20% of Billionaire Bill Ackman’s Portfolio Is Invested in This Artificial Intelligence (AI) Stock — and Wall Street Thinks It Will Soar More Than 20%

Many investors aim for a diversified portfolio, spreading their bets across numerous companies to minimize risk. However, billionaire investor Bill Ackman takes a different approach. His hedge fund, Pershing Square Capital Management, holds positions in just nine companies. This focused strategy has paid off, with Ackman’s fortune now at an impressive $9.1 billion.

Interestingly, more than 20% of Ackman’s portfolio is invested in one particular artificial intelligence (AI) stock. Even better, Wall Street analysts believe this stock has the potential to increase by more than 20% over the next year.

The AI Stock Driving Ackman’s Success

The AI stock that Bill Ackman has heavily invested in is Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google. As of June 30, 2024, Ackman’s Pershing Square fund held roughly $2.1 billion worth of Alphabet’s class A and class C shares.

Ackman began buying Alphabet shares in the first quarter of 2023, not long after OpenAI’s ChatGPT made waves in the tech world. In response to ChatGPT, Alphabet introduced its AI-powered chatbot, Bard, but its launch didn’t go as planned, leading to a dip in Alphabet’s stock price. Ackman saw this as an opportunity and began investing heavily in the company.

During a 2023 interview with CNBC, Ackman explained his reasoning. He pointed out that Alphabet was integrating AI into many of its products, and that the company had a competitive edge due to its ability to design its own AI chips and its massive access to data—both crucial for developing powerful AI systems. These factors convinced Ackman that Alphabet was a strong bet for the future.

While Ackman trimmed his position in Alphabet slightly in the second quarter of 2024, it remains the largest investment in his portfolio. And so far, the stock has been a huge win for him.

Wall Street’s Optimism for Alphabet

Wall Street analysts are equally enthusiastic about Alphabet’s prospects. The average price target for the stock over the next 12 months is $200.67, implying a potential increase of 21.6%. Even the most conservative analyst surveyed believes that Alphabet’s stock will climb in the coming year.

Of the 43 analysts surveyed by LSEG in October, 13 rated Alphabet as a “strong buy,” while another 26 rated it as a “buy.” The remaining five analysts recommended holding the stock, but none advised selling it.

One major reason for this optimism comes from Alphabet’s Google Cloud unit, which has been a major driver of growth. BMO Capital, which recently reiterated its “buy” rating for Alphabet, noted that AI, particularly generative AI, offers a significant opportunity for Google Cloud.

In the second quarter of 2024, Google Cloud’s revenue jumped by 29%, reaching $10.3 billion. Meanwhile, its operating income nearly tripled year-over-year to $1.17 billion. Sundar Pichai, Alphabet’s CEO, revealed that the company’s generative AI tools have already generated billions of dollars in revenue and are currently being used by more than 2 million developers.

Challenges Ahead for Alphabet

Despite the upbeat outlook, Alphabet faces its share of challenges. The company has a long history of legal battles with regulators, and it’s currently embroiled in another one. A federal judge recently ruled that Google unfairly stifled competition in the search engine market. Additionally, the company faces an antitrust lawsuit related to its dominance in digital advertising.

There are also concerns that generative AI could threaten Alphabet’s long-standing control over the search market. According to research firm eMarketer, Google’s share of the U.S. search ad market is expected to drop below 50% for the first time in a decade, largely due to competition from platforms like TikTok and AI startups such as Perplexity.

Nevertheless, even with these challenges, many analysts believe Alphabet has the potential to grow significantly over the next 12 months. Bill Ackman shares this long-term confidence, stating in 2023 that Alphabet would remain a dominant player in AI for many years to come. Given Ackman’s track record of successful investments, his optimism is worth paying attention to.

Should You Consider Investing in Alphabet?

Before rushing to buy Alphabet stock, it’s essential to evaluate all the information. While Wall Street is bullish and Bill Ackman has placed a big bet on the company, it’s always smart to explore other opportunities as well.

For example, The Motley Fool’s Stock Advisor team recently unveiled their top 10 stock picks, and surprisingly, Alphabet wasn’t on the list. These experts believe that other stocks may offer even greater potential returns in the coming years. To give you an idea, if you had invested $1,000 in Nvidia when Stock Advisor first recommended it back in 2005, that investment would now be worth more than $846,000.

The Stock Advisor service offers investors guidance on building a successful portfolio and provides regular updates from seasoned analysts. Since 2002, their recommendations have consistently outperformed the S&P 500.

While Alphabet remains a solid stock with strong growth potential, it’s always wise to consider all your options before making any investment decisions.