Bill Ackman, the founder of Pershing Square Capital Management, has expressed his confidence in Alphabet Inc. GOOGL GOOG, the parent company of Google, as a lucrative investment opportunity.
What Happened: Ackman, in a recent conversation with computer scientist and tech YouTuber Lex Fridman last week, shared his positive outlook on Alphabet. When asked about his analysis of the tech giant, Ackman highlighted the company’s strong position in the market, particularly in the field of AI.
"So it's a business we've admired as a firm for, whatever, 15 years, but rarely got to a price that we felt we could own it," he said, adding, "Because again, the expectations were so high and price really matters."
He then spoke about the "AI scare," when Microsoft Corporation backed OpenAI, and came up with ChatGPT, and people started talking about "this most incredible product." On the other hand, there was Google, which had been working on AI long before.
"Microsoft was behind in AI. It was really their ChatGPT deal that gave them a market presence. And then Google does this fairly disastrous demonstration of Bard and the world says, ‘Oh my god, Google's fallen behind in AI. AI is the future,'" he said.
"Stock gets crushed. Google gets to a price around 15 times earnings, which for a business of this quality is an extremely, extremely low price."
However, despite the AI scare, Alphabet’s core business, including its search and YouTube franchises, remained highly profitable and difficult to disrupt, the billionaire investor said.
"And so our view, based on work we had done and talked to industry experts, is that Google, by virtue of the investment they've made the time, the energy that people put into it, we felt their AI capabilities were, if anything, potentially greater than Microsoft ChatGPT and that the market had overreacted," he added.
The Pershing Square founder also noted that Alphabet’s advertising business is one of the most dominant in the world, with a significant advantage in the shift from offline to online advertising. Ackman sees this trend continuing due to the high return on investment for advertisers in online advertising.
Alphabet is part of Magnificent 7 stocks which are essentially a group of high-performing and influential companies in the U.S. stock market. Other companies in this group are Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
Why It Matters: During the conversation with Fridaman, Ackman also revealed his process for identifying companies with long-term, high-value investment potential. He highlighted the importance of non-disruptive businesses, where investors can confidently predict future value and profitability.
“So, every consumer has a view on different brands and different companies. What we look for are these non-disruptive businesses — a business where you can close your eyes, the stock market shuts for a decade, and you know that 10 years from now it’s going to be a more valuable, more profitable company,” he said.
Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
Photo by Center for Jewish History, NYC via Wikimedia Commons
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