Alphabet’s pursuit of artificial intelligence (AI) may be overshadowed by competition, but prominent investor Bill Ackman says not to gloss over the company.
One of the best ways to find out what’s happening with the “smart money” is to look at the regulatory filings of asset management companies. Bill Ackman, a hedge fund manager and CEO of Pershing Square Capital Management, is a well-known investor on Wall Street.
Mr. Ackman is known for holding a limited number of stocks in his portfolio and taking positions only on high-conviction opportunities. In 2023, it was revealed that Ackman had started investing in him. alphabet (GOOG -0.59%) (Google -0.60%).
This seemed like an interesting move as the artificial intelligence (AI) revolution was just beginning to take shape.why not alphabet microsoft, Amazon, Nvidiaor many other players?
In Pershing Square’s 2023 annual report, released March 22, Ackman offered some hints about Alphabet’s appeal to investment prospects, calling the company a “unparalleled business model.” I wrote that I have. This is a bold statement considering the level of competition within the AI space.
Let’s dig into what Ackman sees in Alphabet and assess whether now is a good time to buy into the stock.
Beyond the advertising business
Alphabet is widely known for its advertising business. Considering the company owns Google and YouTube, two of his most-visited websites in the world, it’s no surprise that advertisers would be keen to leverage these platforms. .
In fact, Alphabet, which generates more than three-quarters of its annual revenue from advertising, relies heavily on the vast surface area of the Internet. However, competition with TikTok is metaInstagram and Facebook, as well as smaller platforms such as: snap and pinterest In recent years, Alphabet’s dominance in attracting advertisers has proven to be a challenge.
That makes Alphabet’s move into cloud computing and cybersecurity a necessary move as it seeks to diversify its business. However, the more nuanced aspect is how Alphabet can apply AI across its evolving ecosystem.
Image source: Getty Images.
AI is just beginning
The past year has been filled with headlines about AI. Unfortunately for Alphabet, the company received some negative PR after the failed launches of its chatbots Bard and Gemini.
Ackman addressed this in his letter, calling these failed campaigns “flawed developments.” But he makes a good counterpoint in that other generative AI models “displayed similarly biased and inaccurate responses.”
The larger theme that Ackman is talking about is that AI is in its infancy. Given the amount of data Alphabet collects across various platforms, the company has an unparalleled source to continue training and honing its AI models and applications. This should lead to enhanced products and services in other areas of the business, particularly in the cloud and productivity suites.
A compelling evaluation story
As of this writing, Alphabet has the lowest forward price-earnings (P/E) multiple of the Magnificent Seven stocks. That looks like it’s a bargain.
GOOG PER ratio (futures) Depends on the data Y chart. P/E = price/earnings ratio.
A few months ago, Ackman even said that Alphabet’s AI business was “free.” The difference in valuation multiples from the chart above is hard to overlook considering: apple Revenue has not increased even after a year, tesla It appears to be slowing down due to the harsh economic situation. I agree with Ackman and believe there is a generational opportunity for investors to buy key AI opportunities at deep discounts relative to peers.
Alphabet ended 2023 with $110 billion in cash and equivalents on its balance sheet. This provides a high degree of financial flexibility that few other companies have.
With such strong financials and leadership positions in multiple Internet and cloud areas, I believe Mr. Ackman is correct in his assessment of Alphabet’s multifaceted business model. I see Alphabet’s next stage of growth being supported by his AI. And the impact of AI on the company’s various applications should not be overlooked. However, this process takes time, so investors should be patient.
I think Alphabet stock looks very cheap when you consider its discount when benchmarked against other mega-cap AI companies. Now could be a great time to use dollar-cost averaging to start or add to existing positions for long-term holding.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Pinterest, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
